Reversing their selling trend, foreign investors have infused over Rs 9,000 crore into the Indian equity markets in May so far amid attractive valuations of stocks and a mega block deal involving HUL.
Experts believe foreign portfolio investors (FPIs) will keep a close watch on how India manages to keep COVID-19 cases under check with relaxations in lockdown curbs, and how quickly it revives growth.
The inflow comes following a net withdrawal of Rs 6,883 crore in April and Rs 61,973 crore in March on fears of a coronavirus-induced global recession.
Prior to that, foreign portfolio investors (FPIs) had put in over Rs 1,820 crore in February.
According to depositories data, FPIs invested a net sum of Rs 9,089 crore in the equity markets during May 1-22.
However, they pulled out a net Rs 21,418 crore from the debt markets during the period under review.
"FPIs are selectively positive on only few Indian equities in the current month. Positive FPI flow in the month of May is only due to strong participation by FPI in mega HUL block deal of Rs 25,000 crore on May 7.
"FPIs were net sellers in the Indian equity market in last 12 out of total 15 trading sessions in May," said Asutosh Mishra, head of research at Ashika Stock Broking.
"Attractive valuation after the sharp correction in the equity markets this year, and significant depreciation of Indian rupee against USD provided FPIs a good entry point," said Himanshu Srivastava, Senior Analyst Manager Research, Morningstar India.
Arjun Mahajan, head of Institutional Business at Reliance Securities, said that positive inflows in May could be due to liquidity infusion by the US, Japan, UK, EU and other countries. Cheap valuations of Indian stocks could be the other factor for the inflow, he added.
With regard to the debt market outflow, Mahajan attributed this to the sell-off in global debt markets, FPIs booking profits and also a very high chance that passive debt funds needed liquidity for margins.
"Since the COVID-19 pandemic has spread across various countries and regions, foreign investors have turned risk averse. Consequently, they shifted their focus towards safer investment options or safe havens such as gold or US dollar, as against investing in fixed income securities of emerging markets like India.
"Here the risks are relatively higher and returns not commensurate with the risk involved," Srivastava said.
He further said foreign investors will be closely watching how India manages the COVID-19 crisis and the macroeconomic situation.
Also, India would continue to witness rotational trend. Hence, bouts of sharp net outflows or net inflows from Indian financial markets cannot be ruled out, he said.
"One could expect this trend to stabilise when the situation on the coronavirus front normalises or shows signs normalisation," he added.