Foreign Portfolio Investors (FPIs) Reshape December Trends in Indian Equities

The month of December unveiled a significant shift as Foreign Portfolio Investors (FPIs) reversed their selling streak, transforming into net buyers within the Indian stock market. Here's an insightful overview of the market dynamics and the factors influencing FPI behavior:

FPI Inflow Intensifies Amid Global Cues

The FPIs bought ₹42,733 crore worth of Indian equities, contributing to a total inflow of ₹51,787 crore by December 15, encompassing debt, hybrid, debt-VRR, and equities, according to NSDL data. Banking and IT segments witnessed substantial FPI interest, reflecting their investment strategy shift.

US Federal Reserve's Role in Triggering the Change

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted the pivotal role of the US Federal Reserve's policy. The Fed's indication of ending its tightening cycle and prospects of three rate cuts in 2024 prompted a significant shift in FPI sentiment. This led to a considerable decline in US bond yields, stimulating foreign fund inflows into emerging markets like India.

Analyzing the FPI Activity Timeline

FPIs underwent a selling spree in August, September, and October due to heightened US bond yields amid geopolitical tensions. However, the trend shifted post-November 15, with FPIs reversing their selling trend and investing in Indian equities. November recorded an inflow of ₹9,001 crore, significantly altering the landscape compared to the combined sell-off worth over ₹39,000 crore in September and October.

US Federal Reserve's December Policy Impact

The Federal Open Market Committee (FOMC) maintained benchmark interest rates, echoing market estimates by leaving them at 5.25% - 5.50%. This steady policy stance further encouraged FPIs to reinforce their interest in Indian equities.

Conclusion

The turnaround in FPI behavior signifies a renewed optimism and confidence in the Indian market. The impact of global cues, particularly the US Federal Reserve's policy decisions, has been instrumental in shaping FPI activity, reinforcing the potential of continued positive market sentiment through December.