Foreign investors fuel surge in Indian financials in March; outflows persist for fiscal 2025
Foreign portfolio investors (FPIs) ramped up purchases of India's financial stocks in the second half of March, marking the highest fortnightly inflows into the sector in 15 months, data from the National Securities Depository showed on Friday.
FPIs invested 175.85 billion rupees ($2.06 billion) in financials, accounting for two-thirds of the total $3.05 billion worth of inflows during the period.
This surge helped the Nifty Financial Services Index rise 9% in March, its best monthly performance since July 2022.
The benchmark Nifty 50 also snapped its longest losing streak in 29 years.
Analysts attributed the buying in financials to attractive valuations, potential rate cuts, and a liquidity injection by the central bank.
Additionally, a regulatory approval that doubled the investment threshold for FPIs to 500 billion rupees ($5.86 billion) prompted a sharp spike in inflows in the last week of March.
"The decision is encouraging for the FPI community and will hopefully bring back much-needed volume in trades and liquidity in the market," said Manoj Purohit, partner and leader of financial services tax at BDO India.
OUTFLOWS PERSIST
However, despite the inflows in March, outflows from Indian stocks still came out on top for the fiscal year ended March 31.
Net foreign outflows for the year were the second-highest on record, reaching $12.7 billion as FPIs who were net buyers in the first half of the fiscal, turned net sellers in the second half.
They offloaded domestic shares worth $29 billion in the October-March period on the back of slowing earnings growth and elevated valuations relative to other emerging markets.
By the end of fiscal 2025, the Nifty 50 had fallen about 10.5% from its late-September peak and its 12-month forward price-to-earnings ratio was trading at a 3% discount to its 10-year average of 20.6x.
Banks and non-bank lenders were also trading well below their long-term averages.
The late-March buying offered short-term relief to markets in March, but risks still remain, say analysts.
"FPIs could reduce exposure to emerging markets as risk aversion rises," said Devarsh Vakil, head of prime research at HDFC Securities, citing global trade disruptions and U.S. reciprocal tax policies.
($1 = 85.2740 Indian rupees)
