Foreign investors have pumped in nearly $4 billion in the country's capital market so far this month due to finalisation of GST rates for bulk of the items and stable outlook for the Rupee.
Interestingly, most of the funds have been invested in the debt markets by the foreign portfolio investors (FPIs).
According to latest depository data, FPIs invested a net Rs.9,007 crore in equities during 2-26 May, while they poured Rs.15,769 crore in the debt markets during the period under review, translating into a net inflow of Rs.24,776 crore ($3.85 billion).
This comes following a net inflow of close to Rs.94,900 crore in the last three months (February-April) on several factors, including expectations that BJP's victory in recently held 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.
Market experts said the huge inflow could be attributed to a slew of factors including finalisation of GST rates for bulk of the items by the GST Council. The move has cleared the decks for the rollout of the historic Goods and Services Tax (GST) from 1 July.
The investors' sentiment got a further boost after the US Federal Reserve signalled that it will wait for more data for a rate hike.
"FPI flows into Indian equities are low as the market has run up in the past four months and valuations are no longer cheap. Having said this, we are seeing some flows coming back to equity market for past few days," Sharekhan Head Advisory Hemang Jani said.
"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," Jani added.
With the latest inflow, total investment in capital markets (equity and debt) has reached over Rs.1.16 lakh crore this year.