FPIs likely to return to Indian markets over rupee recovery

The Indian rupee is expected to strengthen further, reducing the likelihood of significant foreign portfolio investor outflows. Improved earnings growth, stable currency performance and anticipated dollar inflows are supporting market sentiment, while concerns remain over weak monsoon conditions and global investment trends

New Delhi: Rupee is likely to appreciate further in the coming weeks and in the context of appreciating domestic currency, foreign portfolio investors (FPIs) are unlikely to sell significantly going forward, analysts said on Sunday.

The better-than-expected FY26 earnings growth of 15.6 per cent for Nifty 500 is providing fundamental support and resilience to the market. “However, poor monsoon, so far this year, is becoming a concern,” said analysts. There has been a distinct change in the FPI action since June 15. During the week ending June 19, FPIs bought stocks on three days and sold for only two days.

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“For the week ending June 19, the FPIs have net bought equity for Rs 3,386 crore in the cash market. It can be concluded that the relentless selling of FPIs in India is over. The principal reason for this change in FPI activity is the stability and slow appreciation in the rupee,” explained Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd.

The Indian rupee has made a decent recovery from the low of 96.96 to the dollar (touched on May 20) to 94.34, the closing rate on June 19. “Substantial inflows of dollars are expected via the FCNR B bonds in FY27. This, along with crash in Brent crude to $80 levels, will help India in financing the Current Account Deficit (CAD) in FY27 without any stress,” said the analyst.

The concentration risk in investing in a few stocks in South Korea and Taiwan is making FPIs a bit worried. However, the continuing artificial intelligence (AI) trade and the huge, expected profitability of companies like Samsung, SK Hynix and TSMC make these stocks still attractive. Therefore, these stocks may still be bought on declines and FPIs may sell in India on rallies, said the market participant.