Foreign portfolio investors (FPIs) appear to have done a complete turnaround in terms of their investment strategy in the secondary markets. In the first half of December, FPIs invested around $1.7 billion in secondary markets, but reversed course in the second half, selling around $1.77 billion.
However, this significant selling in the secondary markets has come at a time when FPIs maintained strong buying activity in the primary market segment with $984 million invested in the first half and $1.06 billion in the second half. Overall, FPIs sold $70.17 million in secondary markets while bought $2.04 billion in primary markets in December so far.
Experts suggest that in the first half of the month, FPIs were driven towards the secondary markets due to favourable global cues and stable domestic economic conditions. However, profit-taking and year-end portfolio adjustments led to subsequent sell-offs in the later part of the month. Meanwhile, buying in primary markets remained strong as FPIs preferred the growth potential, attractive IPOs, and valuations that align with India’s growth story.
Apurva Sheth of SAMCO Securities believes that expectations for rate cuts in 2025 have diminished following the latest Federal Reserve meeting, with anticipated cuts now limited to 50 basis points. This is likely to keep bond yields elevated. If FPIs can earn higher returns with lower risk in their home markets, their interest in Indian investments may remain subdued unless valuations become significantly more attractive, he said.
Experts also add that in 2025, FPIs might come back in the second half, thanks to India's strong GDP growth, managed inflation, and likely rate cuts. Clearer views on company earnings could make India even more appealing as a place to invest among growing markets, they say.
Prashanth Tapse, Senior Vice President (Research) at Mehta Equities, highlighted several key factors likely to influence the future trajectory of the Indian market. These include developments around Trump-era tariff policies, FPI allocation and sentiment, pre-budget expectations, the RBI's interest rate outlook, and, most critically, Q3FY25 earnings results, which will shape market direction in early 2025. He expressed confidence that FPIs will return as buyers once clarity emerges on growth prospects and earnings recovery in the Indian economy -- factors currently lacking in the prevailing market dynamics.
India's benchmark indices, Sensex and Nifty, declined by 2 percent each in December. Meanwhile, the broader markets showed mixed performance, with the BSE MidCap rising 0.7 percent and the BSE SmallCap slipping 0.7 percent. The IPO market remained robust during December, with 17 IPOs raising Rs 25,700 crore. In the SME segment, 15 IPOs were launched, garnering around Rs 580 crore.
Jathin Kaithavalappil, Assistant Vice President at Choice Broking, stated that FPIs are likely to sustain their interest in IPOs, provided the offerings are robust and valuations remain attractive. As a favoured emerging market destination with a resilient economy, India aligns with the growth objectives of FPIs. Strong IPOs and reasonable valuations resonate with India's growth narrative, ensuring continued FPI participation in the primary market, he said.
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