Foreign Portfolio Investors Resume Buying Streak in Indian Stock Market

Foreign Portfolio Investors Resume Buying Streak in Indian Stock Market

Foreign portfolio investors (FPIs) have once again emerged as net buyers in the Indian stock market, signaling renewed confidence in the country's economic outlook. Data from the National Securities Depository Limited (NSDL) indicates that FPIs purchased equities worth Rs 1,156 crore in India until May 3.

Factors Driving FPI Sentiment

The shift in FPI sentiment follows a brief period in April when geopolitical tensions in the Middle East led FPIs to become net sellers in Indian stocks. Despite being net buyers until mid-April, FPIs cumulatively sold stocks worth Rs 8,671 crore by the end of the month.

"The market is currently at record highs, driven by a pre-election rally. Although not as robust as in the past, FPI activity is closely tied to changes in US bond yields. If US bond yields decline and the Indian economy and markets continue to perform well, FPIs are likely to become more aggressive buyers," commented VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Economic Indicators Boosting Investor Confidence

Earlier in 2024, FPIs aggressively sold Indian stocks and turned net sellers in January before returning as net buyers in February and March. Firm GDP growth forecasts, manageable inflation levels, political stability at the central government level, and indications of the central bank tightening its monetary policy have all contributed to a positive outlook for the Indian economy.

India's GDP grew at a robust 8.4 percent in the October-December quarter of the financial year 2023-24, maintaining its position as the fastest-growing major economy. The country is poised to sustain its growth momentum in the coming quarters.

Strong Inflows and Market Impact

In December, FPIs accumulated stocks worth Rs 66,135 crore, following an inflow of Rs 9,001 crore in November. Notably, the entire year saw an inflow of approximately Rs 171,107 crore, with over one-third of it recorded in December. The strong FPI inflow supported benchmark stock indices in reaching all-time highs.

Before this, FPI participation in Indian stocks was subdued, with net selling recorded in September and October. However, FPIs bought Indian stocks in March, April, May, June, July, and August, reflecting their changing sentiment towards the Indian market.

Laws Governing Foreign Portfolio Investment in India

Foreign Portfolio Investment (FPI) in India is regulated by the Securities and Exchange Board of India (SEBI) under the Foreign Exchange Management Act (FEMA). Here are key regulations related to FPI:

1. SEBI (Foreign Portfolio Investors) Regulations, 2019: These regulations prescribe eligibility criteria, registration process, and compliance requirements for FPIs in India.

2. Foreign Exchange Management Act (FEMA): FEMA governs FPI transactions, regulating foreign exchange transactions in India.

3. Investment Limits: SEBI stipulates investment limits for FPIs in various segments of the Indian securities market, such as equity, debt, and derivatives.

4. Reporting Requirements: FPIs must adhere to reporting requirements mandated by SEBI, including periodic disclosures of their investment activities and holdings.

5. Taxation: FPI income in India is taxed as per the Income Tax Act, with specific provisions for tax rates, exemptions, and deductions applicable to FPIs.

As FPI activity remains a key factor influencing market dynamics, adherence to regulatory frameworks is crucial for maintaining transparency and stability in the Indian stock market.