Foreign Portfolio Investors inject $20 billion in CY23

22 Dec, 2023

Foreign Portfolio Investors inject $20 billion in CY23

Foreign Portfolio Investors (FPIs) have significantly bolstered Indian equities, injecting a substantial $20 billion into the market by December 20, marking the second-highest inflow in the past ten years. This surge follows the $23 billion investment by FPIs in 2020, showcasing continued interest and confidence in the Indian markets.

India's attractiveness is evident as it stands second among Asian economies in FPI inflows, trailing only Japan, which attracted $30 billion. South Korea secured the third position in Asia with nearly $9 billion in inflows for the year.

Andrew Holland, CEO of Avendus Capital Alternate Strategies, highlighted the US Federal Reserve's indication of rate cuts, signaling a shift in foreign investors' focus towards India for the next growth phase. He emphasized India's domestic market-driven economy, citing the compelling consumption story and the population's ascent up the value chain as significant factors driving investor interest.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, echoed this sentiment, noting the global investing community's growing consensus on India's promising prospects. Anticipating continued FPI influx, he emphasized India's favorable positioning in the global investment landscape.

India's stability amid tumultuous times across various Asian economies has reinforced its appeal. Economic crises in Sri Lanka, tensions between Taiwan and China, and political events in Thailand have contrasted with India's relatively stable environment, especially following recent Assembly election results in the Hindi heartland.

Typically cautious during elections, FPIs found assurance in the recent elections' outcome, which provided a clear majority for the ruling party. This anomaly contributed to sustained FPI interest throughout the year, according to market experts.

However, global factors remain pivotal in FPI decisions. U R Bhat, co-founder and director at Alphaniti Fintech, highlighted the significance of global events such as conflicts in the Middle East and between Russia and Ukraine, as well as fluctuations in crude prices, which could influence FPI investment trends.

Bhat emphasized FPIs' tendency to view emerging markets (EMs) collectively rather than in isolation. He also anticipated some near-term outflows as FPIs might repatriate funds while seeking fresh triggers to increase their investments.

The conclusion of 2023 might witness a market slowdown owing to the holiday season, compounded by concerns about new Covid variants or geopolitical tensions, potentially impacting FPI sentiments.

Notably, FPIs withdrew around $4.8 billion in September and October, coinciding with record-high US bond yields. However, sentiments shifted from November onwards as bond yields cooled off, reinforced by the Federal Reserve's dovish stance hinting at potential rate cuts.

The Fed's projection of three rate cuts totaling 75 basis points in 2024 underscores a shift towards growth. Moreover, the decline in the dollar index against major global currencies indicates evolving market dynamics, impacting global investment trends.