When will FIIs return to Indian shores?

The worst phase for foreign flows into domestic equities may soon be over.

Analysts believe the quantum of rate hikes by global central banks is likely to moderate going ahead, especially after the US Fed increased rates by 75 basis points on Wednesday. 

Commenting on the move, Philip Marey of Rabobank International said, “US Fed chair Powell wants to slow down at some point. The FOMC may be thinking of 50 bps hike in September, followed by 25 bps in the remaining two meetings.” 

The slower pace of hikes, in turn, is likely to see flows come back to emerging markets, including India.

Abhijit Bhave of Fisdom Wealth, for instance says, “With global inflation progressively declining and the central banks' aggression over interest rate hikes abating, we anticipate that FII inflows would gather steam over the next two quarters.” 

However, analysts caution against intermittent phases of withdrawals given macro-economic developments across major world economies.

According to Anil Sarin, CIO, Centrum PMS, recent buying driven only by events in the US. Narrative changing from inflation expectation to recession. US Fed rate hikes likely to moderate. The worst (in terms of market fall and FII selling) is over. 

Since October 2021, FIIs have pulled out over 30 billion dollars from the Indian equity markets.

However, the pace of FII outflow has slowed in July as compared to the previous months.  

The Indian markets, meanwhile, saw a sharp drop with the S&P BSE Sensex and the Nifty50 slipping around 7 per cent each from their respective high levels seen in October 2021. 

According to Morgan Stanley, the biggest foreign portfolio investor selling happened in the technology sector, where they have gone underweight during the recently concluded quarter. 

On Friday, the markets will look to consolidate after a busy week. Stock specific action will continue amid June quarter earnings season.