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Three countries account for over 50 per cent of FPI inflows

In terms of equity, investors from the US account for nearly 37 per cent of the total followed by Mauritius with a share of 11 per cent.

By: ENS Economic Bureau | New Delhi |
April 19, 2021 1:32:46 am
Three countries account for over 50 per cent of FPI inflowsIt is widely held that there is a strong correlation between FPI flows and movements in the stock indices. (Representational Image)

Three countries – the US, Mauritius and Luxembourg — accounted for more than 50 per cent of the total foreign portfolio investment (FPI) that India received so far. Out of Rs 44.62 lakh crore investment, US investors accounted for Rs 15.38 lakh crore, Mauritius Rs 5.29 lakh crore and Luxembourg Rs 3.74 lakh crore, according to data from National Securities Depository Ltd (NSDL).

In terms of equity, investors from the US account for nearly 37 per cent of the total followed by Mauritius with a share of 11 per cent. Singapore accounts for 29 per cent of the total debt investments followed by Luxembourg with a share of 11 per cent. Singapore and the US account for a major proportion of hybrid investment with a share of 41 per cent and 28 per cent respectively.

The liberal policies followed by the US Fed have facilitated such flow of funds to the emerging markets with India also benefiting. “With the world economy looking up and global stock markets being in the upward phase given the progress of the Covid-19 vaccination programme, it would be interesting to see if these inflows are sustained,” said a Care Ratings report.

It is widely held that there is a strong correlation between FPI flows and movements in the stock indices.

“This is reinforced by a fairly high coefficient of correlation between changes in Sensex and absolute FPI flows on a quarterly basis between March 2016 and December 2020. It was 0.64. This is also buttressed by a regression analysis which shows a coefficient of determination (which says what percentage of the variation in the Sensex can be explained by movements in FPIs) of 0.41 with the coefficient for FPI flows being significant at 0.0001629,” the rating firm said.

In simple terms this means that $ one bn dollar inflow over a period of three months can increase the Sensex by 1.6 per cent. The other variables would also have to be considered for determining the net effect, it said.

Meanwhile, FPIs pulled out a net Rs 4,615 crore from Indian markets in April so far amid sharp escalation in Covid-19 cases and the consequent restrictions, including lockdowns imposed by various states, unnerving overseas investors. FPIs pulled out Rs 4,643 crore from equities, but invested Rs 28 crore in the debt segment. This translated into a total net withdrawal of Rs 4,615 crore during April 1-16.

FPIs invested Rs 17,304 crore in March, Rs 23,663 crore in February and Rs 14,649 crore in January.

S Ranganathan, Head of Research at LKP Securities, said, “while FPIs pulled out only a small sum of Rs 3800 crore during the first half of the month, the overall sentiment was impacted due to the spread of the coronavirus across multiple states as reflected in the fact that except for the pharma index, all sectoral indices ended in the red for the week gone by.”

Despite several high-frequency indicators pointing towards a slowdown in the economy this month the steep rise in metal prices is having a negative impact on the user industries. The absence of flows this month should also be viewed in the context of the $20 bn inflows in the December quarter which in fact was the all-time highest flow to India in any quarter, he said.

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