New Delhi

In a crucial turn of events, foreign investors have poured approximately Rs 33,700 crore into Indian equities throughout September 2024. This surge is largely attributed to the recent interest rate cut by the US Federal Reserve and the resilience of the Indian market. This influx marks the second-highest monthly investment this year, closely following March's impressive tally of Rs 35,100 crore as detailed in a report by the Press Trust of India.

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Further, due to the impressive buying by foreign institutional investors, Sensex and Nifty 50 have both scaled new record highs. Sensex has scaled an all-time high of 84,881 points, whereas Nifty 50 has touched a fresh all-time high of 25,925 as of early morning trade on September 23.

The latest data indicates that total Foreign Portfolio Investment (FPI) in Indian equities has now reached Rs 76,572 crore for the year. Since June, there has been a notable shift from previous withdrawal trends to aggressive buying. The catalyst for this renewed interest was the US Federal Reserve's decision to reduce rates by 50 basis points on September 18, signaling a potential pivot towards lower interest rates in the near future.

Factors behind the investment surge

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Market analysts are optimistic about the implications of the Fed's rate cut. They anticipate that rates could stabilize around 3.4 per cent by late 2025. As US bond yields decline, emerging markets like India become increasingly attractive to foreign investors. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, emphasized that "the trigger for the aggressive buying by FPIs was the 50 basis points rate cut by the US Federal Reserve on September 18," which he described as a significant pivot towards a new rate-cutting cycle.

In addition to favorable global economic conditions, several domestic factors are contributing to this surge in FPI interest. These include balanced fiscal deficits, robust economic fundamentals in India, and a resilient rupee that reflects growing confidence in India's financial stability. However, experts warn that while this influx is promising, it could lead to market overheating and inflated valuations.

 Implications for the Indian market

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The flow of FPI capital has not only bolstered equity markets but also strengthened the Indian Rupee (INR), which appreciated by 0.4 per cent for the week ending September 20. This positive momentum is expected to further encourage foreign investments as global markets shift focus towards emerging economies.

In addition to equities, FPIs have also invested significantly in debt instruments through various routes. Approximately Rs 7,361 crore was infused via the Voluntary Retention Route (VRR), which promotes long-term investments, while Rs 19,601 crore was invested through the Fully Accessible Route (FRR), enhancing liquidity for foreign investors.

Despite these positive developments, market experts remain vigilant about potential risks stemming from ongoing global volatility and recession fears. The actions of the Reserve Bank of India (RBI) will be crucial in determining future monetary policy direction and its alignment with global trends.

Therefore, the substantial infusion of FPIs into Indian equities underscores not only a growing confidence in India's market but also highlights a strategic shift towards emerging economies amid changing global financial dynamics. As these trends continue to evolve, stakeholders must remain attentive to both domestic and international developments that could shape investment landscapes in the coming months.