FPI inflows hit 3-month high of Rs. 29,000-crore in June

This also marks the fifth consecutive monthly inflow by overseas investors.

Interestingly, most of the funds have been invested in the debt markets by the foreign portfolio investors (FPIs).

"The differential spread between 10-year bond yields in the US and India is still around 4.5-5 per cent. This, coupled with stable outlook for the Indian currency, bodes well for FPI flows into debt market," Sharekhan Head Advisory Hemang Jani said.

According to latest depository data, FPIs invested a net Rs 3,617 crore in equities last month, while they poured Rs 25,685 crore in the debt markets during the period under review, translating into a net inflow of Rs 29,302 crore ($4.55 billion).

This was the highest net inflow by FPIs since March, when they had pumped in Rs 56,261 crore in the capital markets.

The latest inflow comes following a net infusion of over Rs 1.33 lakh crore in the previous four months (February-May) on several factors, including expectations that BJP's victory in assembly polls will accelerate the pace of reforms.

Prior to that, such investors had pulled out over Rs 3,496 crore from debt markets in January.

With the latest inflow, total investment in capital markets (equity and debt) has reached Rs 1.47 lakh crore (over $22.65 billion) this year.

"The most prominent reason for FPIs' net inflow is expectation from the government that it would speed up development and economic reforms in their last two years in office before going for elections in 2019.

"The government finalising GST rates... in addition to forecast of normal monsoon also led to positive sentiment," Himanshu Srivastava, Senior Analyst Manager Research at Morningstar India said.

Besides, markets regulator Sebi's move of relaxing entry rules for FPIs willing to invest directly rather than via participatory notes (P-Notes) is expected to add to the momentum.

Going forward, there are a few challenges but they are not strong enough to disrupt the current trend. Markets and the rupee are surging higher, which offer a good profit booking opportunity for FPIs.

"The flow is largely driven by expectation, and for the flows to sustain, the government has to meet those expectation," he added.

In a blockbuster performance, over a dozen companies have raised more than Rs 12,000 crore through initial public offerings in the first half of the year, a surge of 73 per cent from the year-ago level.

Moreover, the outlook appear to be bullish for the remaining part of 2017 as several high-profile names, including UTI Mutual Fund and SBI Life, are expected to launch their initial public offers to raise Rs 35,000 crore in coming months.

During January-June period of the year, 13 companies have collectively raised over Rs 12,000 crore through their respective IPOs, which is higher than Rs 6,962 crore garnered by 11 issuers in the first six months of 2016.

Most of the funds have been raised for business expansion plans, repayment of loans and to support working capital requirements.

By taking the IPO route, the companies will achieve benefits of listing the equity shares on the bourses, which will enhance their brand name and provide liquidity to the existing shareholders. The largest IPO was that of AU Small Finance Bank (Rs 1,912 crore) followed by Avenue Supermarts (Rs 1,870 crore), Eris Lifesciences (Rs 1,741 crore) and BSE (Rs 1,243 crore).

Among others, CDSL, Tejas Networks, GTPL Hathway and Housing and Urban Development Corporation (HUDCO) have also taken the IPO route to raise funds. According to market experts, proactive regulatory environment coupled with general uplift in investor sentiment has helped the IPO market.

Market regulator Sebi has taken numerous steps that are encouraging companies to sell shares. One key enabler was making Asba (Application Supported by Blocked Amount) mandatory for all investors, including retail. Besides, Sebi's proactive approach to the market has ensured that investors need not fear about frauds.

Further, the IPO market is expected to see hectic activity this year as many companies like Nakshatra World, MAS Financial Services, Capacite Infraprojects and Cochin Shipyard have already secured approval of Sebi to launch public offers.