The current bullish trend witnessed on the Indian bourses is the result of strong liquidity support provided by the Foreign Portfolio Investors (FPIs) year to date (YTD). The trend continues in the new year too, as was witnessed in the last quarter (December quarter) of the previous calendar year (CY) 2019.
In 2020, till date FPIs have invested net Rs 21,886 crore ($3.10 billion) while in Q3 CY’19 their net investment in the Indian equity was Rs 22,300 crore ($6.22 billion). Against this, for second quarter of FY’20, they were net sellers to the tune of Rs 22,701 crore ($3.22 billion).
According to a Morningstar report, foreign investors started the quarter on a subdued note as they turned risk-averse with fears of a global recession and trade wars gaining momentum.
Moreover, the slowdown in the Indian economy, paired with world bodies like the International Monetary Fund (IMF), the Asian Development Bank (ADB), and Moody's cutting India's growth forecasts, also dented sentiments, it added.
"The scenario improved as the quarter progressed largely on the back of the government's intent to bring reforms and changes which are necessary for the economy to grow," the report noted.
Since August, the government has announced a series of measures to revive the economy and regain the confidence of foreign investors.
Some of the prominent measures included a roll-back of the superrich surcharge, the merger and recapitalisation of public sector banks, increased liquidity support for housing finance companies, and NBFCs, relief measures for the revival of the automobile sector, a bailout package for stalled projects in the real estate sector, and most significantly, rationalisation of corporate tax rates.
"Gradually, these measures started to find favour among foreign investors as they started returning to the Indian equity markets. Better-than-expected earnings growth also encouraged investors," Morningstar said.
As per the report, FPIs went on a buying spree through the quarter ended December 2019 notably, they were net buyers in all three months of the quarter as they pumped in net assets worth $6.31 billion.
Also, the value of FPI investments in Indian equities surged significantly during the quarter under review largely due to huge inflows from such investors with gains posted by the Indian equity markets.
The value of FPI investments in Indian equities stood at $432 billion, which is considerably higher than the USD 402 billion recorded in the previous quarter.
This was the highest in the last eight quarters, with the previous high of $442 billion during the three months ended December 2017.
Consequently, such investors' contribution to Indian equity market capitalisation also moved up to 20.9 per cent from 19.3 per cent in the previous quarter.