FPIs make a comeback, lap up Indian stocks worth ₹14,435 crore in December after two months of selling

Indian markets rebounded sharply in December, supported by renewed activity from foreign portfolio investors (FPIs), who turned net buyers after two consecutive months of selling on expectations of potential US Federal Reserve rate cuts in the upcoming meeting.

FPIs purchased Indian equities worth ₹14,435 crore through December 13, as per the NSDL data. This marks a significant reversal from their actions in November, when they sold shares worth ₹21,612 crore, and October, which witnessed a record-high outflow of ₹94,017 crore.

In addition to secondary market activity, FPIs continue to infuse funds into IPOs (through the anchor allocation route and through the regular QIB route), investing ₹8,330 crore so far this month. This brings total FPI inflows in December to ₹22,765 crore.

However, the trend has not been uniformly positive. Even as FPIs turned net buyers in December, they have exhibited caution by selling on specific days. For instance, on December 12, they sold stocks worth ₹3,560 crore, highlighting their mixed sentiment.

Dr V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said that FPIs were selling at higher levels. He noted that they might turn sellers again, as Indian valuations remain relatively high compared to other markets. He further highlighted that the rising dollar is another concern that could prompt FIIs to book profits at elevated levels.

Vipul Bhowar, Senior Director, Listed Investments at Waterfield Advisors, said that the recent rally in the Indian markets has been fueled by a combination of factors. He explained, “Positive political developments, a recovery in corporate earnings, increased foreign investments in both primary and secondary markets, and broad-based sector participation have driven the rally. Historical data reveals that the Nifty Index has closed higher in 71% of Decembers since 2000, with notable gains in 2023 and 2020.”

Vipul Bhowar further stated that the market also received a boost following the Reserve Bank of India’s (RBI) decision to cut the Cash Reserve Ratio (CRR). He noted that this move likely improved market liquidity and sentiment. Additionally, he pointed out that India’s Consumer Price Index (CPI) inflation dropped to 5.48% in November from 6.21% in October, enhancing investor confidence and raising hopes for potential monetary policy easing by the RBI.

Outlook for 2025

According to the market experts, India is expected to experience moderate economic growth in 2025, but several challenges could impact the sustainability of this growth. Easing monetary policies from central banks may help by lowering borrowing costs, providing some relief.

However, weak urban demand remains a concern, as the urban middle class, a key driver of consumption, is slowing down due to high food inflation and stagnant wages, which are reducing disposable income.

Experts also note that global economic uncertainties pose a significant risk, as slowdowns in major economies could affect exports and foreign investments in India. Additionally, the labour market presents challenges, with job creation struggling to keep up with the growing workforce, leading to inconsistent hiring, potential increases in unemployment, and reduced consumer confidence.

While favourable conditions and positive investor sentiment have supported recent market movements, the outlook for 2025 indicates a cautious optimism in light of potential challenges.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.