FII single-day buying hits 3-year high of Rs 14,000 crore. Is Fed turning foreigners ferocious buyers?

Encouraged by Fed’s jumbo rate cut of 50 basis points, fall in US weekly jobless claims and FTSE rejig, foreign investors made their largest single-day shopping in the last 3 years on Friday when they bought stocks worth Rs 14,064 crore in the cash market.

Friday’s provisional data shows that it is the highest single-day buying in the last 3 years and eighth highest in history. The highest single-day buying by FIIs happened on May 6, 2020, when foreigners splurged Rs 17,123 crore on Dalal Street.

“The trigger for this aggressive buying by FIIs was the 50 bp rate cut by the Fed on 18th, which is regarded as a big Fed pivot, marking the beginning of a rate-cutting cycle. The Fed rate is expected to decline steadily to 3.4% by end 2025. Bond yields in the US are steadily declining, nudging the FIIs to invest in emerging markets like India,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

September has witnessed the second highest inflows in 2024 so far, the last one being in March 2024. The total FII investment this month till 20th September stood at Rs 33,699 crore, taking the total FII investment in India to Rs 76.585 crore in 2024 so far.

Despite global uncertainties, the primary factors that make emerging markets like India a sweet spot, are balanced fiscal deficits, rate cut impacts on the Indian currency, strong valuations, and RBI’s approach to keep inflation under control without a rate cut, said Manoj Purohit of BDO India.

Also read | S Naren shares his value investing mantra after turning Rs 10 lakh to Rs 5 crore in 20 years

The trend of FII buying is likely to continue in the coming days as well.

“Banking stocks have turned attractive after news of reduction in the credit-deposit gap. Since banking stocks are fairly valued in this otherwise overvalued market, the buying trend in banking stocks may continue thereby lifting the indexes, too. The flood of FII money has appreciated the INR by 0.4% for the week ended 20th September. This can further boost FII buying. The concern is the market getting overheated and valuations getting stretched,” Dr Vijayakumar said.

After meeting investors across long-only and hedge funds in the US, Emkay Global’s Head Of Research And Strategist Seshadri Sen said investors waiting on the sidelines are now willing to look at India more constructively.

“Many feel that India would be an essential participant of any EM rally triggered by the Fed easing cycle. Valuation worries still persist, but there is recognition that India’s improved macro stability and sustained earnings growth are supporting these rich earnings multiples. There is also a willingness to adopt bottom-up stock-picking ideas over index-anchoring strategies,” Sen said.

Also read | Are interest rate cuts good for bank stocks? Well, it is a double-edged sword!