Foreign investors have poured nearly ₹33,700 crore into domestic equities this month, driven primarily by the recent interest rate cut in the U.S. and the robustness of the Indian market. This marks the second-highest monthly inflow this year, trailing only March, when Foreign Portfolio Investors (FPIs) invested ₹35,100 crore, according to depository data.
As of September 20, FPIs had net investments of ₹33,691 crore in equities this month, bringing their total investment in equities to ₹76,572 crore for the year. After withdrawing ₹34,252 crore in April and May, FPIs have been consistently buying since June.
In September, FPIs remained optimistic about Indian equities, spurred by expectations of a U.S. Federal Reserve rate cut. The Fed’s 50 basis point cut on September 18 is seen as a significant shift, marking the onset of a rate-cutting cycle, with expectations that the rate could decline to 3.4% by the end of 2025. As U.S. bond yields fall, FPIs are increasingly attracted to emerging markets like India.
The declining U.S. dollar and a dovish Fed stance make Indian equities more appealing. The strengthening rupee reflects confidence in India’s stability, although it could pose challenges for the export sector. Analysts also point to balanced fiscal deficits, the impact of rate cuts on the Indian currency, strong valuations, and the Reserve Bank of India’s (RBI) approach to managing inflation as key factors attracting foreign investment.
Additionally, this year’s IPOs have drawn substantial foreign funds, enhancing the buoyancy of the Indian capital market. The influx of FPI capital has appreciated the Indian Rupee by 0.4% for the week ending September 20, potentially encouraging further investments.
However, concerns about an overheated market and stretched valuations persist. Beyond equities, FPIs have also invested ₹7,361 crore into debt through the Voluntary Retention Route (VRR) and ₹19,601 crore via the Fully Accessible Route (FRR), indicating renewed FPI engagement. Yet, ongoing global volatility and recession fears underscore the delicate balance ahead. Market experts are closely watching the RBI to see if it will align with the U.S. Fed by cutting the repo rate in October or delay until December.
