Foreign institutional investors (FIIs) poured nearly Rs 15,000 crore into Indian equities on Thursday, their biggest single-day purchase in more than a year, signalling a sharp change in sentiment after months of relentless selling that had driven foreign ownership of Indian stocks to historic lows. FIIs made net purchases of Rs 14,975 crore during the session, according to provisional exchange data.

The buying came as domestic institutional investors (DIIs) moved in the opposite direction, selling shares worth a net Rs 10,445 crore. Domestic institutions had been a major source of support for Indian equities during the prolonged foreign selloff earlier this year.

The latest inflows extended a turnaround that has gathered pace since mid-October. FIIs have invested a net Rs 39,404 crore over 13 trading sessions since October 16, according to the available data. Over the past four sessions alone, foreign purchases totalled Rs 20,834 crore.

The reversal follows one of the most difficult periods for foreign investment in Indian equities. Overseas investors had withdrawn billions of dollars from the market amid soaring crude oil prices, geopolitical tensions in West Asia, a weakening rupee and concerns about corporate earnings.

Foreign selling intensified in September and October as oil prices rose sharply and global investors reduced exposure to emerging markets. The pressure contributed to a steep decline in benchmark indices, with the Nifty losing substantial ground during the year.

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According to global brokerage Nomura, foreign investors sold nearly $5 billion worth of Indian equities in the fortnight ended October 15, the heaviest fortnightly outflow in 12 fortnights. Cumulative selling since September 15 had reached approximately $8.8 billion.

However, the pace of selling began to moderate in the second half of October, setting the stage for the recent recovery. The change in foreign flows coincided with a sharp rebound in Indian equities. On Thursday, the Nifty 50 surged 2.4% to close at 24,536.60, reclaiming the 24,000 mark and reaching its highest closing level since August.

The Sensex jumped 2,008.61 points, or 2.6%, to settle at 79,310.01, as Indian shares recorded their strongest single-day rally in seven months.

The Nifty has now gained more than 8% over six consecutive sessions, helped by easing crude oil prices, improving global sentiment and renewed buying interest in large-cap stocks.

Banking and automobile stocks led Thursday's rally. The Nifty Bank index surged 3.3%, while the Nifty Auto index climbed 4.1%, supported by strong quarterly earnings and expectations that lower oil prices could ease cost pressures.

The immediate trigger for the rally was a sharp decline in global crude oil prices, which eased concerns over India's import bill, inflation and currency stability. India imports most of its crude oil requirements, making the economy particularly sensitive to movements in international energy prices. A sustained decline in oil prices could improve the outlook for corporate margins, inflation and the rupee.

Hopes of easing tensions in West Asia have also improved investor sentiment, while a softer dollar and lower global bond yields have increased the appeal of emerging-market equities.

The recent recovery has been supported by signs of improvement in corporate earnings. Several large companies have reported strong September-quarter results, encouraging investors to reassess valuations after the market correction.

Nomura believes Indian equities could become more attractive to foreign investors as earnings improve and valuations remain below their post-pandemic averages. The brokerage said Indian equities had gained about 6% in dollar terms since October 8, outperforming most major global markets over the period.

It also noted that the recent correction in artificial intelligence-related stocks in international markets could encourage investors to shift money towards other markets, including India. Expectations of a possible reduction in long-term capital gains tax for foreign investors have added to optimism, although any such change remains uncertain.

Disclosure: This article has been written by Podishetti Akash, who is not a SEBI-registered Research Analyst or an Investment Adviser. Podishetti Akash and his ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclosures here.

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