Surge in FPI inflows
Foreign portfolio investors (FPIs) were net buyers in domestic markets in the month of August, the overwhelming majority of which was in the debt instruments. They put in just 2,082.94 crore in equities, while they put in 14,376.2 crore in debt between August 2-31, according to depositories data.
So far this calendar year, the amount of money invested in the debt section has been the greatest. The fundamental rationale for FPI debt purchases is the widening difference between US and Indian bond yields. The 10-year US Treasury note is below 1.30 percent, while the 10-year Indian Treasury note is above 6.2 percent.
In addition, the INR’s stability has reduced the cost of hedging. Expectations for the exchange rate are similarly positive. At these high equity values, the risk-reward ratio favours debt. The risk of missing out on the market’s momentum may have prompted FPIs to return to equity in August. The global outlook improved as well, with the Fed conveying a dovish message that the economy still has a lot of ground to cover and that rate hikes are still a long way off.
The investment came after FPIs continued to be net sellers in July, selling a total of Rs 7,273 crore. FPIs have also invested $7,768.32 crore in Indian markets in the first three trading sessions of September.
Even if the PMI for August deteriorated, the rising pace of domestic vaccinations, a decent GST print for July, and a high increase in August merchandise trade helped to market mood. In terms of future FPI flows, India cannot be overlooked by global investors due to its larger growth prospects.
Global investment will continue to be difficult in the remaining years of 2021. The market is focussing on stabilizing growth in emerging economies. Therefore, foreign capitalists are seeking developed economies to diversify their risk exposure.
Inflows boost the rupee to a strong mark
The rupee’s recent rise has been fueled by India’s status as the main destination for foreign portfolio investment (FPI) flows, at a time when rival countries have seen outflows due to taper fears.
In August, foreign portfolio investors (FPIs) invested around one billion dollars in shares and around two billion dollars in debt, totalling roughly 3 billion dollars. Last month, the rupee uproared over 2% against the dollar. It closed at 73.02 on Friday, up 0.07 percent versus the US dollar.
Investors are likely to see a positive INR sentiment in the immediate term, given the steady comeback in India and the anticipation of a dampened third wave of pandemic. While India has continued to attract foreign investment, the change is a broader indication of the dollar’s post-Jackson Hole trend. The Asia EM has done well, with the exception of South Korea. The economy is reopening quickly, with the vaccination campaign picking up steam ahead of the festival season. This instils trust in international investors.
Frequently Asked Questions
Q1. What is the difference between foreign direct investment (FDI) and foreign portfolio investment (FPI)?
Foreign direct investment (FDI) refers to investments made by foreign investors in order to get a significant stake in a company based in another country. FPI refers to investing in a foreign country’s financial assets, such as stocks or bonds traded on a stock exchange.
Q2. In India, what is FII?
A foreign institutional investor (FII) is a person or company that invests in a country other than the one where it is registered or has its headquarters. The term “foreign institutional investor” is most widely used in India to describe foreign entities investing in the country’s financial markets.