Overseas investors infused Rs 23,663 crore in Indian markets in February owing to positive sentiment due to the Union Budget 2021-22 and robust third quarter (Q3) earnings.
Foreign Portfolio Investors (FPIs) remained net buyers for the second successive month in this calender year. They pumped in a net Rs 25,787 crore into equities but took out Rs 2,124 crore from the bond market between February 1-26, according to depositories data.
This led to the total net investment touching Rs 23,663 crore during the period under review. The total net investment stood at Rs 14,649 crore last month.
"Most of the FPI flows this month can be attributed to the strong outcome of the Union Budget and third-quarter earnings season," Rusmik Oza, executive vice-president and head (fundamental research) at Kotak Securities, told PTI.
Besides, Geojit Financial Chief Investment Strategist V K Vijayakumar noted that the pace of FPI inflows has slowed since the US 10-year yield is spiking up.
The US 10-year bond yield is a hugely important determinant of capital flows. Inflation expectations are pushing the yields up. This will slow capital inflows, he added.
Oza said the yield, which started the calendar year at 0.91 per cent, has now risen to 1.47 per cent. "This has led to bond yields rising across the globe."
Also, the $1.9-trillion stimulus coming from the US government could lead to a sharper recovery in the US GDP in this calender year.
"Markets are forward-looking and trying to build on the scope of a further rise in bond yields going forward despite the pick-up in vaccination," Oza said.
According to him, emerging market currencies need to be watched going forward.
Countries that see higher impact on their currencies could see higher FPI outflows, he added.
Morningstar India Associate Director (Manager Research) Himanshu Srivastava said the focus will be on economic numbers and how soon India will gain its economic momentum back, moving forward.
There are signs of improvement in the macroeconomic environment and earnings growth, and foreign investors would prefer this trend to continue.
"However, as markets continue to be at elevated levels and given high valuations, the possibility of profit-booking remains, which could slow down the pace of net flows," he said.
Besides, with the US Federal Reserve reaffirming its accommodative stance, the global liquidity backdrop remains positive, which could enable flows into emerging markets like India, Srivastava said.
(With inputs from PTI.)