Foreign portfolio investors (FPIs) are back in the stock markets with an investment of over Rs 7,600 crore during the week ended February 17. However, FPIs have pulled out Rs 1,760 crore in the month of February so far as against outflows of Rs 26,543 crore in January. According to data available from depositories, there was a net outflow of Rs 3,920 crore by FPIs from equities in the preceding week (February 7-12). The total FPI outflow in 2023 works out to Rs 28,303 crore, according to Central Depository Services Ltd. FPIs had withdrawn Rs 132,815 crore from the Indian markets in 2022 amid the rise in inflation and interest rates across the globe with the Ukraine war adding to the woes of the markets. “An important recent trend is that FPI selling has reduced significantly and FPIs have even turned buyers in some recent days. It appears that the sustained selling in India witnessed from early January is over; but they might sell again at higher levels,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. FPIs have been buyers in autos and auto components and construction. They were sellers in banking and financial services in which they are sitting on good profits, he said. The distinctive feature of stock market performance this year is India’s underperformance with Nifty down by 1.4 per cent (year till date). In contrast, the Taiwan index is up by 8.3 per cent and Shanghai composite is up by 3.4 per cent. The principal reason for this variation in performance is the FPI outflows from India and inflows into other emerging markets like China, Taiwan, Hong Kong and South Korea. “Outflows from India have been triggered mainly by the high valuations in India and inflows into other markets have been triggered by their relatively cheaper valuations. The opening up of the Chinese economy and improving prospects there has played an important role in the massive flows to China,” Vijayakumar said. According to a Bank of Baroda research report, a wide range of factors such as the Russia-Ukraine war, higher global rates, strengthening dollar, China factor as well dimming global growth prospects kept investors risk averse. In India, FPI flows did witness bouts of revival but the momentum has once again derailed amidst a domestic stock market rout, further exacerbated by Fed’s unyielding fight against inflation and reopening in China. FPI flows are important to India as these help to supplement the funding requirements caused by a growing current account deficit. With India’s CAD expected to widen to 3 per cent of GDP in FY23, FDI and ECB inflows may not be enough to fund the deficit. FPIs have remained volatile for much of this year with increasing risk and hence they may not contribute positively to our balance of payments, the BoB report said.
