Overseas investors have pumped in over Rs 11,000 crore (USD 1.7 billion) in the Indian stock market this month following new RBI Governor Raghuram Rajan's announcing measures to boost the weakening rupee and revive economic growth.
Moreover, the US Federal Reserve's decision of leaving its stimulus programme unchanged also encouraged foreign investors to park their funds in the Indian stock market.
Inflows in equities were about Rs 11,043 crore (USD 1.73 billion) during September 2-20, while there was a pull-out of Rs 985 crore (USD 159 million) from the debt market, still leaving behind a net inflows of Rs 1,0058 crore (USD 1.56 billion), according to latest Sebi data.
The inflows follow a net withdrawal of nearly Rs 16,000 crore (about USD 2.5 billion) from the domestic capital markets in August.
Analysts said renewed buying by foreign institutional investors (FIIs) was witnessed after Rajan took over as the RBI chief and announced a slew of measures to attract capital flows and boost economic growth.
Rajan, who took over as RBI chief on September 4, had announced various steps to attract dollar inflows, including enhanced limits for exporters to re-book cancelled forward exchange contracts and a window to swap foreign currency deposits.
The local currency, which has been deprecating since May, has zoomed by around Rs 3.5 or about 5.3 per cent so far this month. It closed at 62.23 against the dollar on Friday.
Besides, Fed's decision to continue with its monthly USD 85 billion bond buying programme and wait for more signs of growth recovery have encouraged FIIs to invest in Indian equity market.
Since the beginning of 2013, foreign investors have infused a net Rs 71,212 crore (USD 13.3 billion) in equities, while overseas investors have withdrawn Rs 31,883 crore (USD 4.9 billion) from the debt market.
There has been a turmoil in the global markets after the US Federal Reserve said in May that it may taper the USD 85 billion a month bond purchase programme later this year and end it next year if the US economic recovery is up to its expectations.
The Fed's bond buy programme, through which it infuses liquidity in the US market, has driven asset prices higher, including those in emerging markets, and there are fears that inflows may be hit if the US monetary stimulus comes to an end.