The Indian capital markets saw a surge of Rs. 7,245 crores in net inflows, with foreign portfolio investors (FPI) dropping their cautious stance. The gradually rising investments are a result of an improving macroeconomic environment.
According to the associate director – manager research of Morningstar India, Himanshu Srivastava, this indicates the investors’ higher conviction and market predictability.
More Details on Recent Investments
Here is a brief overview of investments by overseas investors over 2-20 August this year according to depositories data –
- The equities segment saw an investment of Rs. 5,001 crores.
- Total investment in the debt sector stood at Rs. 2,244 crores during this period.
Both of these figures together resulted in a total investment of Rs. 7,245 crores in the Indian capital markets so far this FY.
An Indicator of Improving Economic Sentiments
The country-wide pandemic-driven restrictions had previously lead FPIs to be net sellers in all months except June as per the depositories data.
- A decline in Covid-19 cases and expected economic recovery resulted in a net investment of Rs. 13,424 crores from FPIs in June 2021.
- These overseas investors pulled out Rs. 4,515 crores from the equities segment in the first half of July. Market observers noted driving factors to be the anticipated economic downturn due to the Covid-19 Delta variant and rising oil prices. Additional unfavourable factors for the emerging Indian market were the termination of relaxed monetary policies and surging inflation.
- As of 1 August 2021, these investors had withdrawn a total of Rs. 6,105 crores on a net basis this year.
However, the Indian capital markets began to see the FPIs transition back into net sellers from 2 August. Thereafter, the depositories data for August replicated the improved investor sentiments as previously seen in June.
Do Other Emerging Markets Share a Similar Trend?
According to the executive vice president, equity technical research of Kotak Securities, Shrikant Chouhan, only Indonesia has reported FPI inflows as of now.
Conversely, other emerging markets continue to report FPI withdrawal as follows –
- $341 million in Taiwan
- $855 million in Taiwan
- $5,269 million in South Korea
According to Srivastava, the recent improvement in the Indian markets is primarily due to the alluring long-term investment proposition it offers. He added that despite the FPIs’ increased focus on Indian equities, they are likely to dodge short-term assets due to perceived risks.
The recent developments in the Indian capital markets might be a positive indicator of FPI investments at the moment. However, going forward, overseas investors might want to put such decisions on hold with the Dollar Index at approximately 93.57.
Geojit Financial Services’ chief investment strategist, V K Vijayakumar, added that the market volatility due to Federal Reserve’s July meeting minutes indicates possible tapering by this year’s end, adding to this stagnancy.
Frequently Asked Questions
- Are there FPI inflows reported by other emerging markets in August?
Yes, Indonesia reported net FPI inflows worth $156 million in this period.
- Which asset segment is getting the favour of overseas investors?
The equities segment makes up for a more attractive investment option due to its long-term window.
- What risks do short-term assets pose for foreign investors?
Short-term assets continue to be a risky option for FPIs owing to global inflation and a lower possibility of additional rate cuts.