Foreign portfolio investors returned to Indian equities in October, with net inflows rising to INR 146.1 bn (USD 1.66 bn) — the highest in five months, according to National Securities Depository data.

Financial stocks captured INR 133 bn (USD 1.51 bn), covering 91% of all foreign inflows as investors anticipate a rebound in credit growth, improved earnings visibility, and still-reasonable valuations, according to Reuters.

IN CONTEXT: Foreign investors in emerging markets love good bank stocks, viewing them as lower-risk proxies for investing in the wider economy.

Strong market rally: Shares of state-run banks surged 8.7% during the period, while private-sector lenders and broader financial firms also gained between 4% and 6%, driven by improved earnings and asset quality at HDFC Bank and Axis Bank. Banking and finance sector stocks were the best performers in October. Benchmark indices — the NIFTY 50 and Sensex — rose about 4.5% in October, their strongest performance in seven months.

THE OUTLOOK- As credit growth in finance firms witnesses a revival, “the most attractive basket in Indian markets right now is financials — valuations are reasonable, and if earnings grow 10-12% as expected, FPIs will keep coming back,” Aditya Sood, fund manager at InCred Asset Management, told Reuters.

Oil and gas also joined the uptrend, with net buying of USD 1.04 bn, led by Reliance Industries, whose retail arm benefited from festive season demand. On a cautious note, the foreign portfolio investments have resumed selling this month with INR 98.45 bn (USD 1.1 bn) worth of shares sold in the first three trading sessions in November.

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