Foreign Investors (FII) Inject $3.2 Billion into Indian Markets in June

Following two consecutive months of significant selling, foreign institutional investors became net buyers in June, purchasing shares worth $3.2 billion. This marks the second-highest monthly buying figure, after the $4.2 billion recorded in March.

This is significant because their recent purchases followed two consecutive months of selling, with $3.1 billion sold in May and $1.04 billion in April.

Indian markets have largely been on a winning spree ever since election results were announced in early June, with the Sensex and Nifty reaching new peaks almost daily during the month. This is despite a large section of analysts predicting a correction due to higher valuations.

Interestingly, these predictions have consistently been proven wrong this year, with the Nifty up 11% in the current calendar year to date. 

Additionally, both the Sensex and Nifty surged nearly 7% in June and over 7.3% for the June quarter. The BSE MidCap and BSE SmallCap indices performed even better, with gains of 7.7% and 10.8% in June, and quarterly increases of 17% and 21%, respectively.

Experts believe that foreign institutional investors (FIIs) are demonstrating strong positive sentiment by increasing their bullish positions on Indian equity derivatives. Additionally, the net index futures contracts held by global funds with bullish interest have reached their highest levels in seven years.

Incidentally, if historical data is anything to go by then the current month should also see the markets move further north. 

Except for one year in 2015, Indian equities have seen gains every July since 2014. Additionally, earnings growth is projected to surpass 30% in the current fiscal year.

Additionally, the strong support from domestic investors, both retail and institutional, has been noteworthy. Analysts emphasize that Indian markets have rallied post-election despite lower FPI allocations and withdrawals totaling $3 billion. They point out that domestic funds and retail investors are now driving Nifty50 flows, reflecting confidence in India's economy and corporate earnings.

More importantly, analysts predict that future FPI realignment could attract $100 billion in foreign funds over the next 3-5 years. This optimism stems from the new government's commitment to economic continuity, with policies focused on inclusive growth, strengthening agriculture, improving infrastructure, maintaining fiscal discipline, and implementing reforms.

Analysts suggest that this is expected to boost rural demand and overall consumption, which are key drivers of India's GDP. Amidst this optimism, they advise disregarding short-term market fluctuations.