FPIs may wait for some steam to blow off a red-hot Street

economictimes.indiatimes.com:

investors have the appetite to keep the party on Dalal Street going after pumping billions of dollars into Indian equities in the past four months? With the near-uninterrupted 17% rally from the 2023 lows in March taking domestic benchmark indices to record highs and pushing share valuations to elevated levels, there are concerns that the market may be overheated in the near term which could result in foreigners moderating their purchases of local stocks. Foreign portfolio investors (FPIs) net sold shares worth ₹1,998.8 crore on Friday — their first day of selling after six days and the second in July so far — resulting in the Sensex and Nifty dropping over 1% each.

Though it might be premature to conclude that it may be the start of a reversal, analysts said the pace of flows seen since March is more likely to slow due to the effects of continued Quantitative Tightening (QT) by the US Federal Reserve and the weaker-than-expected first-quarter earnings by blue chips such as Infosys, Hindustan Unilever and Reliance Industries. «The balance sheet size of the US Fed is coming down due to QT.

And therefore, we expect the quantum of flows from foreign investors, particularly those in Europe and the US, into emerging markets to moderate in the near term,» said Manishi Raychaudhuri, head of Asia-Pacific equity research at BNP Paribas Securities. «Even as India continues to remain a relative favourite among the FPIs, the total quantum of flows might come down.

From such a high base, moderation is likely.» Since the end of March this year, FPIs have pumped in ₹1.5 lakh crore ($17 billion) into Indian equities — the highest cumulative tally since the October 2020-March 2021 period. The renewed flows have been driven by