In a testament to renewed confidence in India’s economic fundamentals, foreign portfolio investors (FPIs) have injected a substantial INR 1.7 lakh crore into Indian equities over the course of 2023. The data, a stark departure from the net outflow of INR 1.21 lakh crore in 2022, underscores India’s attractiveness as an investment destination amid global challenges.
December alone witnessed a remarkable influx of INR 66,134 crore, adding to the robust capital market inflows throughout the year. Experts predict that while FPI inflows are expected to remain strong, there is likely to be a more selective allocation approach in the coming months.
Kislay Upadhyay, Founder of Fidel Folio, suggests that the robust FPI inflows could persist, but with a discerning focus. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, points out that the anticipated decline in US interest rates in 2024 may further drive FPI investments, especially leading up to the general elections.
Data from depositories reveals a comprehensive picture of FPI investments in 2023, with net investments of INR 1.71 lakh crore in equities and INR 68,663 crore in debt markets, aggregating to a significant INR 2.4 lakh crore in capital market inflows. The shift in FPI strategy can be attributed to declining US bond yields, with FPIs also re-entering the debt market with renewed interest.
Abhishek Jain, Head of Research at Arihant Capital, points to India’s resilient economic outlook and the compelling domestic consumption narrative as key attractions for foreign investors. The surge in December’s inflow aligns with enhanced political stability, marked by the BJP’s electoral successes in major states.
The changing landscape is also reflected in sector-wise preferences, with FPIs showing a marked interest in financial, IT, pharmaceutical, and energy sectors. This strategic focus capitalizes on India’s technological prowess, healthcare capabilities, and sustainable development commitments.
Looking ahead, the inclusion of Indian government bonds in JP Morgan Chase & Co’s benchmark emerging market index by June 2024 could be a significant driver for FPI interest, potentially attracting USD 20-40 billion over the next 18 to 24 months. This development, highlighted by Himanshu Srivastava, Associate Director-Manager Research at Morningstar Investment Research India, is anticipated to enhance accessibility to Indian bonds for foreign investors and strengthen the rupee.
Abhishek Jain of Arihant Capital underlines the growing interest in the debt segment due to inflation considerations, while Kislay Upadhyay emphasizes the substantial growth potential in India’s under-penetrated debt market.
