It appears that foreign portfolio investors (FPIs) have changed their bearish stance towards the Indian stock market, buying domestic equities aggressively last week and pouring in a massive ₹45,970 crore in just five trading sessions. This marks a strong turnaround after foreign investors remained net sellers for two consecutive months.
The shift in sentiment boosted the Nifty 50 by 8.6% during the week, marking its strongest weekly performance since February 2021. The rally also helped the index pare its year-to-date losses to 4.21%. At its lowest point this year, the index had fallen nearly 15% but has since recovered close to 13% from its yearly low.
In addition to equities, the inflows have also strengthened the Indian rupee, which had suffered multiple record lows this year. The currency climbed 0.6% to 93.91 against the US dollar, its strongest level since April.
The shift in sentiment towards Asia’s third-largest economy comes amid a correction in global AI-linked stocks. Concerns over a potential move by the US Congress, led by Democrats, to impose restrictions on the massive expansion of data centres in the US triggered a sell-off in previously favoured chip and memory stocks across Asia.
In addition, the sharp retreat in crude oil prices has eased inflation concerns, particularly as India remains heavily dependent on oil imports. An improving earnings outlook has further enhanced the appeal of Indian equities among foreign investors.
Global AI sell-off, drop in crude oil prices and improving earnings outlook lift sentiment
India’s relatively low exposure to the AI trade had previously left its stocks among Asia’s worst performers. However, as the once high-flying trade begins to unravel, that weakness has quickly turned into an advantage.
Dheeraj Gaur, Chief Investment Strategy Officer at Choice Wealth, said three factors came together to drive the sharp rally in Indian equities.
First, politics and oil: the US midterm results were read as raising the odds of a de-escalation in the US–Iran conflict, and Brent fell about 13% to roughly $98 – its steepest weekly drop since the start of Covid.
Cheaper oil is the single biggest relief for India’s inflation, current account and rupee, and the rupee strengthened to about 93.90 per dollar from around 95.4 a week ago.
Second, the AI trade cracked. A tech rout on Thursday took the Nasdaq down 5.5% and the S&P 500 4.4%, after weak Qualcomm results and worries about slowing AI infrastructure spending, and Korea and Japan fell about 6% on Friday.
Global funds have been rotating out of AI-linked names into markets like India, which has little AI exposure – Indian IT stocks even rose. Third, India simply looked cheap after a poor year, with earnings holding up.
US inflation, crude oil prices and rupee movement to dictate FPI flows ahead
Looking ahead, Dheeraj Gaur, said several factors will determine the direction of FPI flows. The US Consumer Price Index (CPI) data due on Tuesday, November 10, will be closely watched. With a December rate hike nearly priced in, a hotter-than-expected inflation reading could push bond yields and the US dollar higher.
Gaur also highlighted crude oil prices and developments in the Gulf region as key factors to watch, particularly whether Brent crude sustains below the $100-a-barrel mark or the de-escalation narrative begins to lose momentum.
In addition, commentary from Federal Reserve officials and movements in US bond yields will be closely monitored following the latest jobs report, as any hawkish messaging around a December rate hike could influence global fund flows.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
