Foreign investors made a strong return by injecting more than ₹2 lakh crore into Indian equities in 2023-24, driven by optimism surrounding the country's robust economic fundamentals amidst a challenging global environment.
Looking forward to 2025, Bharat Dhawan, Managing Partner at Mazars in India, said that the outlook is cautiously optimistic and anticipates sustained Foreign Portfolio Investors (FPI) inflows supported by progressive policy reforms, economic stability, and attractive investment avenues. "However, we remain mindful of global geopolitical influences that may introduce intermittent volatility, emphasising the importance of strategic planning and agility in navigating market fluctuations," he added.
The outlook for FY25 from an FPI perspective continues to remain strong, Naveen KR, smallcase Manager and Senior Director at Windmill Capital, said. In the current fiscal 2023-24, FPIs have made a net investment of around ₹2.08 lakh crore in the Indian equity markets and ₹1.2 lakh crore in the debt market. Collectively, they pumped ₹3.4 lakh crore into the capital market, as per data available with the depositories.
The dazzling resurgence came following an outflow from equities in the preceding two financial years. In 2022-23, Indian equities witnessed a net outflow of ₹37,632 crore by FPIs on aggressive rate hikes by the central banks globally. Before this, they pulled out a massive ₹1.4 lakh crore. However, in 2020-2021, FPIs made a record investment of ₹2.74 lakh crore.
The flows from foreign investors were largely driven by factors such as inflation and interest rate scenarios in developed markets such as the US and UK, currency movement, the trajectory of crude oil prices, geopolitical scenario, and the health of the domestic economy among others, Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India, said. "Investors increasingly favoured Indian equities, drawn by the market's demonstrated resilience during uncertain periods. Compared to other similar markets, India's economy stood out as more robust and stable amidst global economic turbulence, further attracting foreign investment," he said.
FPIs increase investments in debt market
After withdrawing funds in the preceding fiscal, FPIs poured a staggering ₹1.2 lakh crore into the debt market too, marking a noteworthy shift in their capital flow. They took out funds to the tune of ₹8,938 crore in FY23.
FPIs' debt investments have been extremely robust this fiscal due to attractive yields on Indian sovereign debt relative to the US treasury. This has been supported by strong macros in the form of the robust growth outlook for the Indian economy, stable inflation and a stable currency, and the stated objective of the Government to improve its fiscal deficit, Nitin Raheja, Executive Director, Julius Baer India, said. Additionally, the upcoming inclusion of Indian bonds in JP Morgan's index has led to an inflow in advance into the Indian debt markets. Further, the expected global tapering in policy rates should make bond yields in emerging economies look even more attractive to investors making this trend of inflows into Indian debt more sustainable, he added.
Overall, FPIs started the year 2023-24 on a positive note in April and incessantly purchased equities till August on the resilience of the Indian economy amid an uncertain global macro backdrop. During these five months, they brought in ₹1.62 lakh crore. After this, FPIs turned net sellers in September and the bearish stance continued in October, with an outflow of over ₹39,000 crore in these two months. However, FPIs became net investors in November and the optimism persisted in December too, when they purchased equity to the tune of Rs 66,135 crore. Again, they turned sellers and pulled out Rs 25,743 crore in January.
This could be on account of China opening up after the lockdown. This led FPIs to pull out their investments from other emerging markets like India and divert them toward China. However, China struggled to sustain investor interest. Moreover, the fiscal year ended on a positive note as FPIs bought shares worth over Rs 35,000 crore in March.
Published - March 29, 2024 03:24 pm IST
