Investors sentiment is riding high following the government’s announcement of a series of reform measures in recent months, and in anticipation of more announcements in the upcoming budget.
Foreign institutional investors have pumped in close to Rs 33,688 crore in equities and debt in January 2015 alone, about 13.1% of last year’s total Rs 2.56 lakh crore.
In the first week of this month, FIIs have invested about Rs 12,000 crore in capital markets.
Between February 2 and 6, FII investment in equities stood at Rs 4,702 crore and in debt at Rs 7,059 crore, taking the total investment to Rs 11,760 crore.
Of the total inflow, most of the investment was accounted by the debt market, which analysts attributed to measures taken by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) to attract long-term overseas investors.
RBI and Sebi last week amended their norms for foreign portfolio investments, asking them to make their future investments only in corporate bonds with minimum residual maturity period of three years. There would be no lock-in period and FPIs would be able to sell the securities to domestic investors.
Foreign investment in equity and debt stood at Rs 97,054 crore and Rs 1.59 lakh crore, respectively, last year, according to data from NSDL. However, in the month of January 2015 alone, FIIs invested Rs 12,919 crore in equities and Rs 20,769 crore in debt.
According to a Credit Suisse report, the concentration of FII holdings in mid-cap stocks is high — 73% is in the top 50 stocks.
“India is definitely a favourite with foreign investors as they see the new government taking small but steady steps to implement reforms,” said Jitendra Panda, CEO, Peerless Securities. “Investors are aware that improvement will happen gradually.”
Analysts also cited the availability of liquidity in global markets and an economic slowdown in China as factors that are likely to aid foreign inflows.
Mutual funds’ ownership of stocks, currently at 3.9%, is also nearing its 2009 high, the Credit Suisse report said. The weight of financials with respect to both FIIs and mutual funds have increased, the report added.
At the Royal Bank of Scotland private banking investment outlook in January, Mark McFarland, global chief economist, Coutts, had said, “FIIs see India as a great long-term boom market.”
From a policy-making perspective, central banks around the world will not likely raise interest rates, McFarland had added.