By Ruma Dubey

FIIs  simply love India. They are truly, totally in love. At least for now.

That’s the only way in which one can explain this frenzied buying by FIIs into Indian equities and bonds. In the first week of September (1-5 Sept), net investments by foreign investors in the equity market stood at a record Rs. 3,972 crore. Not just equity, in debt too, FIIs made huge investments – Rs.5013 crore. This means between 1^st and 5^th Sept, FIIs poured in Rs.8986 crore into Indian markets. And we are talking about just the first week of Sept. As per data put out by SEBI, yesterday, on 8^th Sept, FIIs invested Rs.327 crore in equity and Rs.2013 crore, taking the total, investment by FIIs from 1^st Sept to 8^th Sept at Rs.11,327 crore.  As against this, for entire month of August’14, FIIs had put in Rs.17,105 crore – over 66% of entire August’s money has come in first 8 trading days of Sept. That’s most certainly huge!

At a time when the QE tapering is coming to an end, when fears were expressed about money running out of India, FIIs are actually investing like there is no tomorrow. And this brimming optimism stems from the current stable political scene, with Modi at center stage.

That apart many other reasons too are playing on the FII sentiments. Yesterday, the fall in global crude oil prices to below $100/barrel was the main trigger, with the rupee also gaining strength against the dollar, when it closed at one-month high of Rs.60.29. Today the price is expected to move in a range of 60.10-60.50 levels.

These two factors – decline in price of crude and appreciation of rupee are extremely good signs for the macroeconomic factors.  The good Q2Y15 GDP numbers were, many say, a pointer to this very fact.

It is too early to say that this trend of falling crude and rising rupee will remain. But if it does persist, it will go on to vastly improve the fiscal deficit and current account numbers of India. Long term benefit could be a fall in inflation and this is very farfetched as of now, but FIIs are also looking ahead at rate cuts. As we said, this is going ahead of the curve. Sources in OPEC have been quoted saying that they see this fall in crude below $100 as a short term occurrence. With winter just round the corner, OPEC expects prices to rise. With most Gulf countries on ambitious major infrastructure build up, they simply cannot afford to earn less from oil sales. Thus price of crude staying low seems temporary and it might be too naïve to celebrate the current reprieve.

On the other hand, FIIs are enthused about the murmur of pension funds finding their way into Indian equities. If this is indeed allowed, it is expected that at least Rs.5000-6000 crore will come into the stock markets every year.

Another very significant happening which the FIIs are banking on is the issue of crude premium rates. There is news that the Govt plans to very strongly persuade the Middle East to cut the crude premium rates charged to Asian countries. In FY14, India imported 189 mt of crude, worth around $143 billion. And here, the premium, the price which is paid over and above the price of gas or crude to ensure stability and proximity, was around $1.5 to 3 per barrel. This means that if India does manage to bring down the premium, it could result into a whopping saving of as much as $3 billion per year on the import bill.

Most FIIs are foreseeing big things to happen in India. Goldman Sachs raised Nifty's target to 9,000 points for September 2015. Its previous target was 8,600 points for June 2015. BNY Mellon's Asia-Pacific head of depositary receipts said that FIIs will continue to invest in India. Nomura also remains bullish and says that any correction might not be long lasting.  

The consensus on the Street is that the bull run is here to stay. So what should be your strategy? Every correction can be used as an opportunity to buy. Be stock specific. Focus on capital goods and infrastructure. Hold on and sail with the tide. You could see newer and wider horizons.