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FPIs invested ₹117.63 billion in Indian IT stocks in July, driven by US Fed signals and strong earnings. This surge led to a 13% gain in the Nifty IT index, marking the highest inflows since sector reclassification in 2022.
Foreign portfolio investors (FPIs) showed significant interest in Indian IT stocks in July, with net purchases amounting to ₹117.63 billion ($1.40 billion). This marks the highest investment in the sector since the National Securities Depository (NSDL) implemented a new sectoral classification system in April 2022.
The NSDL's sectoral reclassification in 2022 reduced the number of sectors from 35 to 22, merging categories like software, services, and hardware technology into a unified IT sector. This streamlined classification made it easier for investors to allocate capital across the IT industry.
The surge in FPI interest was primarily driven by the US Federal Reserve's comments indicating a potential rate cut starting in September. Analysts believe that a rate cut in the US could boost client confidence in inflation management, potentially leading to a recovery in demand and an increase in discretionary spending.
Additionally, strong earnings reports from major Indian IT firms further fueled FPI interest. Tata Consultancy Services (TCS) and Infosys, the country’s leading IT companies, exceeded expectations in their June-quarter results and provided optimistic forecasts. However, Wipro was an exception, falling short of market expectations.
As of August 8, TCS’s share price closed at ₹4,174, marking a decline of 0.63%. Infosys shares ended at ₹1,739, down by 2.94%, while Wipro shares closed at ₹488.05, reflecting a decrease of 1.88% on the NSE.
The influx of foreign capital into the IT sector contributed to a 13% rise in the Nifty IT index in July, marking its best monthly performance since August 2021. This rebound in operating performance and an improvement in deal conversion rates among IT companies played a crucial role in attracting FPI investments.
Beyond the IT sector, FPIs also invested heavily in the automobile, metals, and capital goods sectors, which benefited from strong earnings momentum. However, the financial sector faced outflows worth ₹76.48 billion in July, a decline attributed to moderating net interest margins (NIMs) and higher credit costs.
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