'Hey, you up?' FPIs went from ghosting to love-bombing India's blue-chips

Detailed summary

Earlier this year, the hottest profiles on the app were Taiwan, Korea and Japan, thanks to the AI and semiconductor boom. India was left on "read" as investors devoted more time, capital and enthusiasm elsewhere.

Foreign portfolio investors (FPIs) are polyamorous by design. They never commit exclusively to one market. Instead, they maintain relationships with multiple countries at the same time, constantly adjusting the level of attention and affection each receives.

They had ghosted India's blue-chip stocks for the last two years, only to return with even more gusto when the most-popular matches, which boasted of AI on their profile, lost their aura.

Between December 4 (when the rupee hit 90 to the $ for the first time) and May 19, when it hit its all-time low, the rupee fell 7.5%. The bulk of the fall was due to FPIs selling Indian stocks and oil prices spiking 73% in the same period, as a result of the US-Iran war.

The investor allocations followed the growth projections down, which dented India's finances, currency, earnings, and valuations. Strikingly, what played out over a period of more than five months has reversed in just over a month.

Only a tenth of the oil price rise has been reversed, but three-fourths of the outflow has come back since Oct 7, when the rupee was last seen reeling near its record low. What the data shows is that not all the reversal is due to oil.

"It's the story of tortoise versus hare," said Nilesh Shah of Kotak Mahindra AMC, describing rebalancing of global portfolios, away from AI and into India's blue-chip stocks. "The catalyst they wanted was lower oil prices and a reversal of the AI trade. Both are happening, and hence we are seeing their allocation moving towards neutral."

For the last two years, FPIs withdrew attention and money from India and showered their love on markets like South Korea, Taiwan, and Japan because they had stocks with stakes in artificial intelligence (AI), which came with fat profits. Hopes for AI have started to moderate as funding costs rise and Democrats grow sceptical that data centres will seize control of the Congress.

Just as the hype around AI started to fade, corporate India delivered two consecutive quarters of…

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