India exhibits great potential as an investment destination with rising FPI inflows

A prominence of overseas investors was observed in the first five trading sessions of August with total FPI inflows at $USD 134.4 million.

August 8, 2021

While equities had a total investment of $USD 131 million, the debt segment amounted to $USD31.5 million.

Experts believe that a reduction in unemployment, GST revival and PMI print recovery are some of the contributing factors.

The recovery of both the domestic economy and the macro environment suggest a potential for further rebound in FPI inflows for India.

Rising FPIs was also noted in other emerging markets and Asian markets such as Taiwan, South Korea, Indonesia and the Philippines.

The first five trading sessions of August saw the dominance of overseas investors in Indian markets in addition to various domestic factors. The total amount of FPI inflows was $USD 134.4 million. An investment of $USD 131 million was made in equities, according to depositories data, while the debt segment had a total investment  of $USD31.5 million. The FPI outflows amounted to $USD977 million in total in the month of July. 

Shrikant Chouhan, executive vice president of the equity technical research division at Kotak Securities, cites domestic indicators such as the recovery in PMI prints, reduced rate of unemployment in CMIE surveys and the revival in GST receipts as the reasons why markets managed to stay afloat, also bringing to attention the 1.51 percent gained by the MSCI Emerging Markets Index in the same week.. On the other hand, Morningstar India’s associate director-manager research Himanshu Srivastava believes that these factors are not indicative of a change in the trend yet. He believes that a boom in oil prices, firmness in the US Dollar, higher valuations are the reason why FPIs have been kept away from Indian equities. With markets dealing with all-time highs, these factors have also been making profits at regular intervals. However, a potential third wave has brought skepticism in the minds of foreign investors along with high valuations that prevent the exclusion of interim profit booking and the effects of the dollar movement on foreign flows into the Indian equities. 

In the long-term, India continues to remain a preferred destination for FPI flows and the improvement of the domestic economy and macro environment fueled by economic recovery can bring a rebound in FPI flows.

The pattern of rising FPI inflows has been observed in all key emerging markets and Asian markets such as Taiwan, South Korea, Indonesia and the Philippines which witnessed month to date FPI inflows of $USD2,588 million, $USD 1,722 million, $USD 93 million and $USD 8 million. On the flip side, Thailand saw FPI outflows amounting to $USD182 million.