India Attracts Highest Foreign Funds in Asia, Domestic Buying at 4-Year High

In March 2024, Foreign Institutional Investors (FIIs) pumped a massive $3.63 billion into Indian equities, their biggest buying spree since December 2023. This made India the top destination for foreign funds among Asian markets.

Domestic Institutions Join the Buying Frenzy

Domestic institutional investors continued to be net buyers, investing a staggering Rs 52,467 crore in the Indian market, hitting a four-year high.

Other Asian Markets See Mixed Flows

Outside India, FIIs invested in markets like South Korea ($2.91 billion), Taiwan ($1.14 billion), and Indonesia ($585 million). However, they pulled out money from Japan ($5.35 billion outflow), Thailand ($1.13 billion), Malaysia ($514 million), Vietnam ($197 million), and the Philippines ($40 million).

Factors Behind the Inflows

According to Deepak Jasani, Head of Retail Research at HDFC Securities, the net FII inflows were driven by block deals, index rebalancing, and an opportunity to buy undervalued stocks after a market correction. For domestic institutions, cash reserves and year-end positioning fueled the buying.

Major Block Deals and Market Correction

March witnessed significant block deals, including BAT Plc selling its stake in ITC, Rakesh Gangwal divesting in Interglobe Aviation, Tata Sons selling TCS shares, and Singtel diluting its stake in Bharti Airtel.

The benchmark indices Sensex and Nifty lost 0.1% each, while the BSE MidCap and SmallCap indices declined by 0.7% and 5.53%, respectively, due to factors like ED raids, Sebi warnings, liquidity stress tests, and fears of RBI intervention.

Impact on Market Liquidity and Valuations

Analysts noted that liquidity has dried up after recent actions by the RBI and enforcement agencies, impacting market operators and HNIs reliant on leverage. NBFCs are reassessing lending against shares, reducing overdraft facilities for HNIs and triggering forced liquidation of positions.

However, mutual fund SIP flows are expected to remain stable, and attractive valuations may draw in investors waiting on the sidelines. Stocks linked to dubious entities might take longer to recover, while fundamentally sound ones may rebound more swiftly.

Bullish Outlook for Mid and Small-Caps

Brokerage Nuvama Research suggests turning bullish after the recent correction in mid and small-cap stocks, viewing the current phase as a correction within an ongoing bull market. They recommend long positions, citing oversold conditions, strong global market tailwinds, upcoming earnings seasons, and general elections as favorable risk premiums.