Foreign portfolio investors have pumped in a massive Rs 18,589 crore into the Indian markets the first week of June as sentiment improved amid graded lifting of lockdown curbs.
Additionally, Reliance Industries' mega rights issue, which closed during the week and was oversubscribed, and stake sale of 2.8 percent by Uday Kotak in Kotak Mahindra Bank attracted significant foreign flows, said Himanshu Srivastava, associate director-manager research, Morningstar India.
During the first five trading sessions of June, overseas investors put in a net sum of Rs 20,814 crore in equities but pulled out a net Rs 2,225 crore from the debt segment.
The total net investment between June 1-5 stood at Rs 18,589 crore.
Prior to this, foreign portfolio investors (FPIs) were net sellers for three consecutive months. They withdrew Rs 7,366 crore in May, Rs 15,403 crore in April and a record Rs 1.1 lakh crore in March.
Market sentiment has improved as the Indian government announced an overall Rs 20 lakh crore economic relief package to tide over the challenges posed by COVID-19 pandemic and the lockdown, said Bajaj Capital Research.
"The global crude price's spectacular recovery by surging 40 percent during May and slowdown in global infection growth helped to revive the risk-on sentiments among the investors...," it added.
However, Srivastava said the investment environment continues to be grim as almost all global economies are staring at a recession.
The simmering tensions between the US and China also do not augur well for emerging markets like India, which are more vulnerable towards geopolitical risks.
Though foreign investors have returned to invest in the Indian equity markets, it needs to sustain to call it a change in trend and not a short-term investment opportunity, he said.
If the situation worsens, foreign investors can again switch back to the risk-averse mode, he added.
According to Harsh Jain, co-founder and COO of Groww, "there is a sense of optimism in the markets and a belief that the worst is behind us in terms of market performance."
FPIs have been investing in fundamentally strong bluechip companies and this trend is likely to continue in the near future. More money will flow into market leaders. Strong companies are likely to be able to weather and even take advantage of challenging times, Jain added.
However, he said FPI inflows into India do not depend just on Indian factors and the global economic scenario also greatly impacts investor sentiment.
"The ongoing tension between US and China, the economic situation in the US, and the upcoming US elections all are factors that will affect FPI investment in India for the rest of FY21," he said.