After pulling out money from the Indian equities market in the past two months, FPIs made a strong comeback in November with a net investment of ₹36,329 crore on the weakening of the US dollar index and positivity about overall macroeconomic trends.

This was the third month (July, August and November) in this year when FPIs witnessed net inflows. Moreover, they started the month of December on a positive note.

“Going forward, flow trajectory is expected to remain positive in December. However, some shift could be seen from expensive stocks to value stocks,” Anita Gandhi, Whole Time Director and Head – Institutional Business at Arihant Capital, said.

“India will get its fair share of Foreign Portfolio Investors (FPIs) money, however, the high valuation will be a deterrent,” VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

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According to data with the depositories, FPIs invested a net sum of ₹36,329 crore in equities in November.

"The cooling US inflation, sluggish crude oil prices, the decline in metals and freight rates and expectations of a slower pace of rate hikes by the US Federal Reserve have contributed to the positive sentiment," Kaizad Hozdar – Investment Advisor, TrustPlutus Wealth (India) Pvt Ltd, said.

“The second quarterly financial numbers were decent for the banking and auto sectors, which are barometers of economic growth. This also resulted in decent positive flows by FPIs in equity markets,” Gandhi said.

The latest fund infusion came following a net outflow of just ₹8 crore in October and ₹7,624 crore in September.

Prior to these outflows, FPIs were net buyers in August to the tune of 51,200 crore and nearly ₹5,000 crore in July. Before that, foreign investors were net sellers in Indian equities for nine months in a row which started in October last year as dollar was continuously rising.

So far this year, the total outflow by FPIs in equities stood at ₹1.25 lakh crore.

"In the short run, the most important factor determining FPI strategy is the movement in the dollar index. When the dollar index moves up and is expected to trend up, they sell. Conversely, when the dollar index declines and is expected to trend down, they buy," Geojit's Vijayakumar said.

In terms of sectors, FPI buying was seen in financial services, IT, auto, FMCG, capital goods and telecom. According to him, FPIs were sellers in financials in October but were buyers in November. There is no consistency in their sectoral selling strategy.

On the other hand, foreign investors have pulled out nearly ₹1,637 crore from the debt market during the period under review, the data showed.

Global majors like the US, UK, and Canada are undergoing interest rate hikes. Though India was also undergoing rate hikes, the pace of hike was higher in the western world, reducing the interest rate arbitrage. This has resulted in some outflow from the debt market, Arihant Capital's Gandhi said.

Apart from India, FPI flows were positive across emerging markets such as the Philippines, South Korea, Taiwan, Thailand and Indonesia so far this month.

Last week, Sensex touched a fresh lifetime high of 63,583.07 and the Nifty too made a new high lifetime high of 18,887.60. The two benchmarks indices rose nearly 4 percent each between November 21 to December 1. 

Despite US Federal Reserve members making it amply clear that the fight against inflation is not over, the global markets were still pricing in rate cuts toward the end of 2023.

In India, analysts will be eying RBI rate move after the Fed meeting in mid December. 

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