Amid excess liquidity in the global markets and dwindling economic prospects in Covid pandemic-hit developed countries, foreign portfolio investors (FPI) continue to turn their focus on emerging markets such as India. FPI investment in Indian equities crossed ₹80,000 crore just five months into fiscal 2020-21 despite the country being home to the highest number of coronavirus cases after the US and Brazil.
Resumption of economic activities and the current attractive valuation of stocks seem to have piqued the interest of FPIs in Indian equities.
Record inflow in August
According to the latest data from depositories, FPIs made a net investment of ₹80,595 crore in Indian equities from April till date. Of this, around ₹44,000 crore, or 54 per cent, came in August alone, making it the highest-ever monthly inflow of FPI funds in Indian equities. The earlier high, at ₹33,981 crore, was recorded in March 2019. In August 2019, there had been a net outflow of ₹17,592 crore, while FY20 had seen a net inflow of ₹6,153 crore.
“The reasons for the massive FPI flows are the humongous liquidity created by leading central banks, particularly the (US) Fed, and the historically low interest rates,” said VK Vijaya Kumar, Chief Investment Strategist at Geojit Financial Services. Market experts also attribute the surge in FPI flows to the recent spate of fund-raising by Indian corporates through QIPs, FPOs and IPOs; this has provided the FPIs with access to good quality stocks at attractive valuations in the secondary market.
The fund-raise helped the markets go north, said Nirali Shah, Senior Research Analyst, Samco Securities. “Banks and other business houses are undertaking fund-raising from FPIs to shore up their pandemic-hit balancesheets. Approximately 50-60 per cent of the bulk inflow is through the non-secondary route, which has kept the mood intact,” she added.
Despite gloomy predictions by global rating agencies, FPIs continue to repose faith in India’s recovery and growth potential. After pulling out a record ₹61,973 crore in March, FPIs have made a gradual return this fiscal (see chart).
However, FPIs have been net sellers in the Indian debt market with a year-to-date net outflow of ₹40,029 crore in the current fiscal.
The strong FPI inflows and healthy participation by domestic players have also led to the Indian stock market nearing pre-Covid-19 highs. From the lows touched in March, the stock market has rallied more than 50 per cent.