FPIs withdraw Rs. 4515 crores from the Indian equities segment in July

As per data published by depositories, Foreign Portfolio Investors (FPI) have withdrawn net investments worth Rs. 4515 crores in the first half of July 2021. Accordingly, it appears that they are moving towards the Indian market with caution. That said, they had taken an aggressive approach in the first three months of this year before pulling out funds amidst concerns regarding the second wave of Covid-19.

FPIs started buying again in June, between 1 July and 15 July, recording a net outflow of Rs. 1482 crores. They started withdrawing again from equities, investing Rs. 3033 crores in the debt segment during that same period. Currently, the net FPI investment stands at Rs. 55,829 crores, owing to the aggressive buying between January and March this year.

Why have FPIs pulled out?

Market observers note that FPIs have withdrawn from equities segment owing to these reasons:

• Concerns in relation to ‘Delta’ variant: This highly transmissible Covid-19 Delta variant that was first identified in India is spreading across the world. Accordingly, the number of cases can rise rapidly, impacting chances of economic recovery.
• Surging oil prices:Oil prices have been increasing in the past few months owing to the economic recovery that is in full swing right now.

Additionally, it appears that the rising inflation and possible discontinuation of loose monetary policies can influence investors. After all, the continuing firmness of the US dollar and increasing bond yields are not quite favourable for capital inflows, especially for emerging markets, such as India.

Excluding Indonesia, other emerging markets have recorded significant FPI outflows this month till now. Here’s a tabular representation showing the total capital outflow in the first half of July:

In case concerns in relation to the pandemic persist among foreign investors, there’s a high chance that they might pull out more funds from the Indian market. Before the capital outflow in April, FPIs have been investing in the Indian market since October. As per data published by depositories, they invested funds worth over Rs. 1.97 lakh crore in equities segment between October 2020 and March 2021.

Bottom line

It appears that FPI activity may continue to remain volatile, at least as far as the near term is concerned, owing to the rising crude oil prices and the federal monetary policy. Going ahead, investors must keep in mind to track the spread of the Delta variant while monitoring oil prices, bond yields, etc., at the same time.

Frequently Asked Questions

1. What is the difference between FDI and FPI?

FPI refers to those who invest in financial instruments, for example, stocks and bonds of different organisations based in another country. That said, FDI refers to investments made by entities in productive assets of different countries.

2. What is FPI limit?

For the period April 2021 to September 2021, the FPI limit in -Sec Long Term, G-Sec General, SDL Long Term, GSDL General, and Corporate Bonds is Rs. 10,14,957 crores.

3. What is the benefit of FPI?

FPI allows investors to diversify portfolio assets, which in turn enables them to maximise their risk-adjusted returns.