Record FPI Investment in Indian IT Stocks Amid Positive Outlook
Foreign portfolio investors poured $1.40 billion into Indian IT stocks in July 2024, marking the highest investment since sector reclassification in 2022. Positive earnings and potential U.S. rate cuts drove the surge.
In July 2024, Foreign Portfolio Investors (FPIs) made a significant investment of 117.63 billion rupees ($1.40 billion) in Indian IT stocks, according to data from the National Securities Depository Limited (NSDL). This marks the highest investment since the implementation of a new sectoral classification in April 2022.
The surge in FPI interest can be attributed to several factors:
- Potential U.S. interest rate cuts
- Positive earnings reports from major IT companies
- Improved deal conversion rates
Analysts from Emkay Global suggest that the anticipated start of the U.S. interest rate-cut cycle could boost client confidence in inflation trajectories, potentially leading to increased demand and discretionary spending.
The performance of India's top IT firms played a crucial role in attracting FPI interest:
- Tata Consultancy Services (TCS) and Infosys, the country's two largest IT companies, surpassed June 2024 quarter estimates and provided optimistic forecasts.
- Wipro, however, fell short of expectations.
"A rebound in operating performance of most IT companies as well as improvement in deal conversion rate in June quarter also added to the FPI interest"
FPIs also showed interest in other sectors, including automobiles, metals, and capital goods, driven by sustained earnings momentum.
However, the financial sector experienced outflows of 76.48 billion rupees in July 2024. This decline was attributed to moderating net interest margins and higher credit costs. Major banks such as ICICI Bank, Axis Bank, and State Bank of India (SBI) missed Net Interest Margin (NIM) expectations for the June 2024 quarter due to increased funding costs.
Despite the outflows from the financial sector, overall FPI inflows in Indian markets reached a four-month high of 323.65 billion rupees in July 2024, as reported by NSDL.
This record investment in IT stocks comes two years after the NSDL reclassified sectors in April 2022, reducing the total number of sectors from 35 to 22. This change was implemented after India's stock exchanges, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), adopted a common industry classification system.
The robust FPI investment in Indian IT stocks reflects growing confidence in the sector's potential and the broader Indian market, despite global economic uncertainties.
