In a notable reversal of fortunes, Foreign Portfolio Investors (FPIs) significantly shifted their focus towards India in 2023, intensifying their commitment to Indian equities in December by injecting a remarkable ₹57,313 crore (approximately $7 billion) into the market.
This marks the highest monthly net investment influx into Indian equities in the past three years. Notably, FPIs had set a record in December 2020 by infusing ₹62,016 crore, establishing it as an unprecedented monthly milestone.
During November 2023, FPIs displayed a net investment of approximately ₹9,000 crore in the cash segment. However, both September and October of the same year witnessed net outflows from equities, totalling ₹14,768 crore and ₹24,548 crore, respectively.
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As December 2023 approaches its end, with only four trading sessions remaining, FPIs are on track to conclude the calendar year with net investments reaching around $21 billion. This contrasts starkly with the net outflow of about $14.5 billion from equities in the cash segment in the preceding year, underscoring their optimistic outlook on the potential returns from Indian equities in the upcoming year of 2024.
Jitendra Gohil, Chief Investment Strategist at Kotak Alternate Asset Managers, informed BusinessLine that multiple factors contributed to Foreign Portfolio Investors (FPIs) adopting a positive stance on India in December 2023, subsequently boosting capital inflows.
One significant factor is the U.S. Federal Reserve’s shift, indicating an intention to commence interest rate cuts in 2024. This shift has resulted in higher FPI flows into Emerging markets during December.
The second factor stems from a macroeconomic perspective, specifically the unexpected 7.6 percent growth in India’s Q2 GDP. Gohil emphasized that if this positive trend continues, with potential earnings upgrades in subsequent quarters, the argument that India is overvalued may lose its strength.
The third crucial factor is the aspect of “political stability.” Following the BJP’s robust performance in recent state elections, the likelihood of a stable government at the center has increased. This, in turn, has diminished the overall political risk premium for India.
The final reason cited is the increasing trend of FPIs taking a pessimistic stance on China. Gohil highlighted a clear indication that capital flows are redirecting from China to India, thereby benefiting the Indian market.
Looking ahead to 2024, Gohil expressed his anticipation of an improved Foreign Portfolio Investors (FPIs) investment inflow compared to 2023, encompassing both the equity and debt segments. He noted that the inclusion in JP Morgan global indices would contribute approximately $25 billion to the debt front.
However, Gohil cautioned that the only potential risk to sustained FPI interest in India next year is the chance of the Chinese economy gaining momentum. In such a scenario, there is a possibility that capital flows could shift from India to China.
Official data revealed that the total FPI stock of equity holdings in India surpassed $700 billion for the first time this year, reaching $723.6 billion as of the fortnight ending December 15.
Foreign Portfolio Investors (FPIs) showing interest in Bonds as well.
In December 2023, Foreign Portfolio Investors (FPIs) injected a historic ₹15,545 crore into the debt segment, strategically positioning themselves for the forthcoming opportunities arising from India’s inclusion in JP Morgan EM bond indices scheduled for June 2024. Notably, the total inflows from FPIs in the bonds segment for October and November 2023 amounted to ₹6,381 crore and ₹14,860 crore, respectively.
Conclusion
In conclusion, investors should stay vigilant and well-informed about the dynamic trends in the share market. Recent developments, such as the substantial FPI investments, positive macroeconomic indicators, and the evolving geopolitical landscape, underscore the need for a thoughtful and informed approach to share market investments. It’s crucial to conduct thorough research, assess potential risks, and stay attuned to market shifts to make informed and strategic investment decisions in the ever-changing financial landscape.
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