Explained: FPI Investment In India, What’s Behind Fallout

After a robust 2023, foreign investors signicantly scaled back their investments in Indian equities in 2024, with net inflows amounting to over Rs 5,000 crore, as elevated domestic valuations, coupled with geopolitical uncertainties prompted investors to adopt a more cautious stance.

Looking ahead to 2025, FPI inflow into Indian equities could see a recovery, supported by a cyclical upswing in corporate earnings, particularly in domestic-oriented sectors like capital goods, manufacturing, and infrastructure, Vinit Bolinjkar, Head of Research, Ventura Securities, said.
However, elevated valuations and cheaper alternatives in other emerging markets, such as ASEAN and Latin America, could constrain these inflows.

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Additionally, lingering concerns over a prolonged global recession may weigh on investor sentiment and appetite for risk assets, he added.

On the other hand, Feroze Azeez, Deputy CEO at Anand Rathi Wealth Ltd, believes geopolitical escalations, central bank interest rate cuts, and potential US tari sanctions could act as tailwinds for FPI inflow into Indian markets.

As of now, foreign portfolio investors (FPIs) have made a net investment of over Rs 5,052 crore in the Indian equity markets and Rs 1.12 lakh crore in the debt market (till December 24), as per data available with the depositories.

This follows the extraordinary Rs 1.71 lakh crore net investment in equities in 2023, driven by optimism surrounding India’s resilient economic fundamentals.

In contrast, 2022 witnessed the worst net outflow of Rs 1.21 lakh crore due to aggressive rate hikes by global central banks.

Significance Of FPI For India

Foreign Portfolio Investments (FPIs) play a crucial role in India’s economy. They provide a significant source of investment capital, helping to boost liquidity in the financial markets and promote efficient capital allocation and price discovery.

The importance of FPIs in India can be seen in the following ways:

– Increased Access to Capital: FPIs provide Indian companies with a vital source of funding for growth and expansion.
– Improved Liquidity: FPIs help improve the liquidity of Indian stocks, making it easier for companies to raise capital and for investors to buy and sell shares.
– Diversification: FPIs enable Indian companies to diversify their shareholder base, reducing the risk of takeovers or hostile bids.
– Economic Growth: FPIs can contribute to India’s economic growth by providing foreign capital, promoting investment, and creating jobs.