Foreign investors infused Rs 15,352 crore into Indian equities during the first half of this month, driven by the government's commitment to ongoing reforms, low US Federal rates, and strong domestic demand.

The upcoming Union Budget will be one of the most watched events by foreign investors to understand the government's plans for economic growth, Himanshu Srivastava, Associate Director - Manager Research at Morningstar Investment Research India, said.

According to the data with the depositories, foreign portfolio investors (FPIs) have made a net inflow of Rs 15,352 crore in equities this month (till July 12).

This came following an inflow of Rs 26,565 crore in equities in June on the back of political stability and a sharp rebound in markets.

Before that, FPIs withdrew Rs 25,586 crore in May on poll jitters and over Rs 8,700 crore in April on concerns over a tweak in India's tax treaty with Mauritius and a sustained rise in US bond yields.

The latest FPIs' flow can be attributed to the positive sentiments, stable government's assurance on continuity of reforms, tepid US Fed rates and a strong domestic demand, Manoj Purohit, Partner and leader - FS Tax, Tax and Regulatory Services, BDO India, said.

Additionally, the anticipation of a reform-oriented budget has also lifted investor sentiment. Better than expected earnings season so far has also worked towards building investor confidence, Srivastava said.

Apart from equities, FPIs invested Rs 8,484 crore in the debt market during the period under review. This has pushed the debt tally to Rs 77,109 crore this year so far.

The key characteristic of institutional equity flows into the Indian market is the unpredictable nature of FPI flows compared to the consistent growth of domestic institutional investors (DIIs) including mutual funds' flow.

DIIs have been consistent buyers every month in 2024, while FPIs have fluctuated between buying and selling. FPIs sold a cumulative amount of Rs 60,000 crore in January, April, and May but bought Rs 63,200 crore in February, March, and June together.

"The reason for this divergence is that FPI activity is influenced by external factors like US bond yields and valuations in other markets while DII activity is largely driven by domestic flows into the market," VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

Abhishek Banerjee, smallcase Manager and founder at Lotusdew, said FPIs have a great chance in India as they can earn high returns in foreign currency, benefit from rising stock prices, and gain from falling bond yields.

However, Chinese markets are much cheaper. So, the challenge for investors is choosing between chasing momentum or going for value, he added.

In terms of sectors, Vijayakumar said that better-than-expected results from IT majors so far indicate the potential for FPIs buying into these stocks where valuations are not excessive.

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