Buoyed by US Federal Reserve’s half a percentage point cut in benchmark interest rates, Foreign Portfolio Investors (FPIs) turned aggressive buyers this past week, pumping in about ₹11, 500 crore in Indian equities in five trading sessions. 

This took the net inflows for this month to ₹33,691 crore as of September 20. This was higher than the net monthly flows in six out of eight previous months in the current calendar year.

Overall net FPI investments so far this calendar year stood at ₹76,585 crore, data with depositories showed. On Friday alone, a day after the US Fed’s first rate cut in more than four years, FPIs purchased Indian equities worth ₹14,064 crore in cash market. 

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that the week ended September 20 witnessed a major shift in FPI activity with these investors turning aggressive buyers.

“The ferocity of the FPI buying can be noticed in the massive ₹14064 crore buying in the cash market on September 20. This buy figure is a 3-year high”, he said.

The trigger for this aggressive buying by FPIs was the 50 basis points rate cut by the Fed on 18th, which is regarded as a big Fed pivot, marking the launch of its first easing cycle since the onset of the pandemic, he noted.

“Bond yields in the US are steadily declining, nudging the FPIs to invest in emerging markets like India”, Vijayakumar added.

“The trend of FPI buying is likely to continue in the coming days. The flood of FPI money has appreciated the Indian rupee by 0.4 percent for the week ended 20th September. This can boost further FII buying. The concern is the market getting overheated and valuations getting stretched”, he added.

Manoj Purohit, Partner and leader, FS Tax, Tax and Regulatory Services, BDO India said that September has witnessed the second highest inflows in 2024 so far, the last one being in March 2024. 

“Despite global uncertainties, the primary factors, to make emerging markets like India a sweet spot, are balanced fiscal deficits, rate cut impacts on the Indian currency, strong valuations, and RBI’s approach to keep inflation under control without a rate cut”, Purohit said.

To add, the IPOs announced this year attracted a large chunk of foreign funds making the Indian capital market buoyant and a lucrative place to shift their positions from other riskier countries, he added.

All eyes are now on the Reserve Bank of India (RBI) to see whether it would follow suit by making a cut in the repo rate in October or wait till December. 

Purohit said there is a strong case to marginally cut rates to manage food inflation, diluted interest from household savings which impact the retail lending business of banks. India’s monetary policy has been more conservative despite the Fed’s action so far.

“The Indian government is vigilant enough to the external macro factors and leaving no stone unturned to shift its policies for making the capital market most conducive for foreign infusions”, he said.

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