In a significant economic development, foreign investors have channelled more than Rs 13,300 crore into Indian equities within the first fortnight of April. This robust inflow is attributed to India’s sturdy economic fundamentals and the nation’s prospects for continued growth. This substantial foreign capital inflow underlines investor confidence despite looming concerns about the potential policy changes affecting the India-Mauritius tax treaty, which will be keenly watched by market stakeholders until there is greater transparency on the revised treaty’s terms.
Chief Investment Strategist at Geojit Financial Services, V K Vijayakumar, highlighted that the India-Mauritius tax treaty’s pending changes and the heightened geopolitical tensions in the Middle East, particularly the escalation between Iran and Israel, might induce short-term market volatility. Nevertheless, the solid backing from domestic institutional investors (DIIs) and the buoyant sentiment among retail investors and High Net-worth Individuals (HNIs) in India is expected to effectively absorb any resultant Foreign Portfolio Investor (FPI) outflows.
Amid talks of tax treaty changes, FPIs experienced a sell-off on a particular Friday, accounting for Rs 8,027 crore, yet the investment tide remains strongly positive for the month. According to depository data, FPIs have made a net investment of Rs 13,347 crore in Indian equities up to April 12.
Morningstar Investment Research India’s Associate Director, Manager Research, Himanshu Srivastava, opined that multiple factors have contributed to these influxes. These include the credit rating agency Fitch’s downgrade of China’s sovereign credit outlook from stable to negative due to growth concerns, which possibly shifted some focus to India. Additionally, predictions of a normal monsoon season improving inflationary conditions and reinforcing a resilient domestic economy have further propelled these massive inflows.
The investment fervor extends beyond equities, with FPIs also pouring Rs 1,522 crore into the Indian debt market during the same period. This continued attention to the debt sector comes in anticipation of Indian government bonds’ inclusion in the JP Morgan Index, slated for June 2024. This historic move, announced last September by JP Morgan Chase & Co., is expected to draw in an estimated USD 20-40 billion into India over the subsequent 18 to 24 months post-inclusion.
So far this year, the inflows have been noteworthy, with a total of Rs 24,241 crore invested in equities and a staggering Rs 57,380 crore in the debt market. In the preceding months, FPIs have shown a strong investment pattern, injecting Rs 13,602 crore in March, Rs 22,419 crore in February, and Rs 19,836 crore in January.
These investments underscore a continued trend of foreign investor confidence in the Indian market’s performance, underpinned by solid economic strategies and growth potential. The landscape of Indian equities and debt appears increasingly attractive to foreign investors, with substantial liquidity from DIIs ready to balance any potential jitters from international developments.
While the adjustments to the India-Mauritius tax agreement and the Middle Eastern geopolitical climate could pose short-term concerns, the overarching confidence in India’s economic trajectory seems to overshadow these apprehensions. With the government’s strategic moves, such as the bond index inclusion and the overall investor optimism, India’s markets are poised to remain a focal point for foreign investment inflows.
The Indian market’s allure shows no signs of waning as analysts closely monitor regional and global developments that could influence investor sentiment. The judicious blend of local optimism among investors and the structured approach to market expansion continues to foster an environment that is conducive to foreign capital inflows, heralding a sustained era of financial growth and stability for the Indian economy.
