On October 28, a shocking sight was seen in the Indian stock market when foreign institutional investors (FIIs) made net purchases of about ₹10,339.80 crore. This figure is the highest net purchase made by FIIs in a single day after June 26. Also, so far this month (October) he has invested approximately ₹ 10,040 crore. In such a situation, the question arises whether this is just a one-day purchase or is there going to be a big trend change in the market?
What is the reason?
It is believed that there are three main reasons behind this purchase. Market experts believe that the first reason was that there were some big ‘block’ purchases in selected shares. Second, on the day of expiry (futures/options), positions were taken on the lines of June expiry, but selling was seen the next day. Third, the October series saw an improvement in the long-short ratio of FIIs.
From these signs it seems that foreign investors are again becoming active towards the Indian stock market. But is this just a sneaky move or actually a change in trend?
What is changing?
- Expectations of Fed rate cut Before the meeting of the US central bank Federal Reserve on October 28-29, it was expected that they could reduce the rates by 25 basis points. If this happens, the dollar may weaken and stocks and metals in emerging markets – especially India – may benefit. This kind of global situation can attract foreign investors towards India again.
- Rupee vs Dollar Situation: The US dollar has strengthened in the last one-two months. Due to this, many currencies have been under pressure, but the Indian Rupee has also strengthened to some extent. When the rupee is stable or strong, foreign investors may be more inclined towards India as they have less currency risk.
A momentary wonder or a permanent trend?
It is too early to say whether this change is completely permanent, but the possibilities are increasing. Market experts have cautioned that in past experiences, foreign buying seen around the expiry day has often turned into selling the next day. That means it can also be a ‘one-day affair’.
But if a few things go right, it could point to a change in trend, such as regular and increasing net buying by foreign investors. Improvement in earnings and corporate performance which should continue to support expectations, US interest rate cuts, dollar weakness, recovery of emerging markets and stability in Indian economy, rupee and policy environment.