August inflows: India defies market volatility with strong foreign investment

India attracted the highest level of foreign investment in August compared to developed and emerging markets, even after major stock indexes fell eight times in the past 14 trading sessions.
Foreign investors have poured 1.11 billion USD into domestic securities since August, while withdrawing investment money from other markets. Taiwan recorded the highest capital outflow with $3.9 billion, followed by Brazil with $1.74 billion, Indonesia and South Korea with about $1 billion each, and Thailand and South Africa with approximately $350 million per country sold by foreign institutional investors.
Year-to-date, the FII has purchased about $16 billion in local shares while as of April 1, it has bought $19 billion, according to SEBI data. Amit Pabri, Principal Analyst at CR Forex, says the FIIs have shown a positive trend in their investment models. Their allocation is at 20% above the three-month average. The significant contrast between the FII line and the movement of the Nifty index can be attributed to global uncertainty. Recently, the world’s major credit rating agencies downgraded the ratings of the United States and its banking sector. At the same time, concerns arose about China’s real estate sector, especially Country Garden, causing hedge funds to sell off. Legal actions have stabilized the situation, but pressure remains on Chinese stocks, heightened by Evergrande’s bankruptcy filing. As a result, foreign investors are shifting their investments to the promising Indian market, analysts said.
national challenge

Meanwhile, national actions face a number of challenges. Global uncertainty, rising domestic inflation and earnings reservations all cast a shadow. In response, foreign investors are diversifying into India to stabilize amid a complex global landscape, analysts said.
Ajay Bodke, independent market analyst, said India’s growth outlook, unlike China’s, remains strong, thanks to a resilient property and investment cycle, supported by lows of assets does not guarantee efficiency. This positive trajectory was supported by India Inc.’s steady earnings performance, expectations of a further pause in interest rate hikes by the Reserve Bank of India, and the stability of the rupee, all of which contributed to actively bought from FII despite the drop in local stocks.
Brokers predict strong growth in India in Q2 2023. Many of them share the view that the chances of rate cut are limited and RBI should maintain its stance throughout. financial year. GDP data for the April-June quarter will be released on August 31. According to the RBI forecast, GDP growth may have accelerated further to 8% in the second quarter of 2023. The Indian market has entered a correction phase since August after a strong recovery. Analysts have suggested that a significant drop is unlikely as recent gains have positioned the markets for consolidation.
According to Kotak Institutional Equities, strong macroeconomic fundamentals, improvements in the consumption sector and positive perception of India are acting as buffers against a market downturn. However, high valuations across all sectors will limit further upside potential.

India’s leading stock indexes, Sensex and Nifty, are both down nearly 2.4% each through August, their first monthly declines after five consecutive months of gains. The drop was the steepest since December 2022.
Additionally, the BSE MidCap index fell 0.1% while the BSE Smallcap index gained nearly 1%. Since March 28, Sensex and Nifty are up about 13% each, while mid-cap and small-cap indexes are up about 30% and 35%, respectively.
Data from ICICI Securities for July 2023 shows that foreign investors by portfolio have maintained their purchases of high-risk stocks, mainly related to cyclical and capital-intensive sectors. (finance, industry, consumer discretionary, energy). Meanwhile, the recent rise in US bond yields has raised concerns about accelerating REIT flows out of the Indian market. However, brokerage firm ICICI Securities said that these concerns may not be well founded. “The most recent rise in US yields from​​​​​​3.75% to ~4.3% was triggered by Fitch’s rating downgrade and is putting pressure on REIT flows into India. However, the US 10-year bond yields are likely to stay near the upper range as this should ease concerns about REIT outflows, although structural outflows from domestic equities in India continue. continues to be positive, as evidenced by the record SIP inflows,” the report from ICICI Securities added.