Data from NSDL showed that, so far in August, FPIs have infused a total of ₹55,031 crore in the overall Indian market (equities, debt, debt-VRR, and hybrid instruments).
From the total, foreign funds inflow in the equity market was at ₹49,254 crore between August 1 to August 26 --- accounting for 89.50% of the total inflows in the market. Meanwhile, inflow stood at ₹4,370 crore in debt, and ₹2,918 crore in debt-VRR. However, foreign investors were net sellers in the hybrid market to the tune of ₹1,510 crore during the period.
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, "FPIs continued to buy equities in August in spite of rise in US bond yields and rising Dollar," adding, "They were buyers in the cash market too in all days of August except three."
The strategist added, "FPIs are now buying stocks of financials, capital goods, FMCG, and telecom. The fact that FPIs are buying in India even amidst strengthening dollar is a reflection of their vote of confidence in the Indian economy."
In July month, FPIs inflow stood at ₹1,971 crore in the Indian market - and of which -- inflow stood at ₹4,989 crore in the equities.
June month has been the worst in terms of FPIs stance in the Indian market --- with outflow at ₹51,422 crore. During the month, the outflow was at ₹50,203 crore in the equities.
From January to June this year, FPIs pulled out a massive ₹2,17,358 crore from the equities market. However, due to buying in July and August, some outflows in the equities have been recovered. Now, overall, FPI outflow in the equity market is around ₹1,63,115 crore year-to-date.
Overall, FPIs have removed around ₹1,70,288 crore from the Indian market (including equities, debt, debt-VRR, and hybrid) year-to-date.
However, going forward, Vijaykumar added, "The ultra-hawkish stance of the Fed at Jackson Hole is a short-term negative for equity markets. This might impact FPI flows in the short-term."
In the Jackson Hole speech, US Federal Reserve chair Jay Powell stated to keep high-interest rates to fight inflation at cost of economic growth. The US dollar reached its highest level in two decades and many analysts are expecting it to strengthen further against a basket of currencies.
According to Mitul Shah- Head of Research at Reliance securities, the Federal Reserve continues raising interest rates and holding them at a higher level until it is confident inflation is under control and at the 2% level. Slackness in the rate of investment, spending, and hiring will be the unfortunate cost of reducing inflation. The RBI has made it clear to achieve its medium-term inflation target of 4% over the next two years.
Shah added, "The focus in the next few weeks would be on how central banks prepare to combat in the near term. The RBI’s rate-setting panel is likely to opt for slowing down the pace of hikes and increasing the repo rate by 25 bps in September. The central bank has already hiked the repo rate by 1.4% in three consecutive actions since May this year, in response to the high inflation which has been consistently breaching the upper end of the tolerance band set by the government to the RBI."
Further, Shah said that the Monsoon in India till 26th August, is ~8% above the long-term average. The fourth advance estimate of production of major agricultural crops production of wheat during FY22 is estimated at 106.84mn Tonnes. The reserves have declined in August to the lowest level for the month in 14 years, while consumer wheat inflation is running at close to 12%. India's retail inflation may be moderating after hitting a peak in April but there are some upside risks that will weigh on the RBI as it decides the course of future rate hikes.
"We expect some profit booking next week after 15-20% gain seen in last two months," Shah added for the Indian market.
