FPI inflows hit 8-month high in May; will the trend sustain? Angel One answers

Foreign portfolio investor (FPI) inflows into India reached Rs. 14,429 crore in May. This marks the highest monthly inflow in the past eight months, driven by easing Indo-Pak tensions, potential US trade deals, a weakening US dollar, and strong corporate earnings. Despite this positive trend, India faces significant cumulative FPI outflows of Rs. 97,922 crore, reflecting ongoing global uncertainties.

Angel One noted that these cumulative outflows highlight persistent market uncertainties. The year began with substantial challenges, notably in January with a net outflow of Rs. 78,027 crore. This downward trend reversed in April when FPI flows became net positive, continuing with increased momentum into May. These shifts underscore the volatile nature of current market conditions.

Reports indicate significant sell-offs in May, particularly on 21st May, when FPIs divested Rs. 10,000 crore in Indian equities due to rising US Treasury yields and renewed Indo-Pak tensions. Angel One maintains that despite these geopolitical uncertainties posing near-term risks, the long-term economic outlook for India remains robust, supported by domestic growth.

India's economic landscape has undergone a notable shift, with the country surpassing Japan to become the fourth largest economy globally, closely trailing Germany. This positioning underscores India's long-term growth potential, bolstered by domestic consumption and manufacturing capabilities. Angel One emphasises this trajectory as a foundation for sustained economic strength.

The firm anticipates a compound annual growth rate of 14-17% for India's corporate earnings over the next 3-5 years. Vaqarjaved Khan, a senior fundamental analyst at Angel One, suggests that as market valuations improve, FPI inflows will likely see significant boosts, akin to recent increases in April and May. This growth outlook provides a promising perspective for India's financial markets.

Angel One cautions about potential headwinds from rising US Treasury yields and geopolitical risks. These could impact FPI inflows in the near term. However, India's economic narrative, driven by consumption and manufacturing, continues to offer resilience against short-term disruptions, maintaining investor interest.

Overall, while uncertainties persist, India's economic and corporate growth trajectory, along with strategic international relations, will be crucial in ensuring sustained FPI inflows. This environment challenges stakeholders to navigate complex global economic and geopolitical dynamics strategically.