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Foreign Portfolio Investors (FPIs), who made a huge U turn towards India in 2023, doubled down on Indian equities in December 2023, pumping a record ₹57,313 crore ( about $7 billion) so far this month.
This is the highest monthly net investment flow in Indian equities in the last three years. FPIs had in December 2020 pumped in ₹62,016 crore, a record for any month.
In November 2023, FPIs made net investment of about ₹9,000 crore in cash segment. Both September and October this year saw net FPI outflows from equities at ₹14,768 crore and ₹24,548 crore.
With only four more trading sessions left in December 2023 , FPIs are well on course to close the calendar year 2023 with net investments of about $21 billion compared to net outflow of about $14.5 billion in equities in the cash segment, reflecting their bullishness on prospects for returns from Indian equities in upcoming 2024.
Jitendra Gohil, Chief Investment Strategist, Kotak Alternate Asset Managers, told BusinessLine that several factors are responsible for FPIs turning positive on India in December 2023 and this helped boost inflows.
These include US Fed’s Pivot (that they will start cutting interest rates in 2024), which has led to Emerging markets getting higher FPI flows in December.
Second reason is from a macro perspective, India Q2 GDP print at 7.6 percent was a big surprise.
“Now if GDP continues to surprise on the upside in remaining quarters and we might see earnings upgrade, then the entire valuation argument that India is expensive may turn feeble”, Gohil pointed out.
Third important factor is “political stability” and, after the strong performance by BJP at the recent State elections, the probability of a stable government at the Centre has gone higher. This has lowered the overall political risk premium for India, he said.
Last reason is that more and more FPIs are now taking a negative bet on China. “There is clear indication that flows are moving out of China to India and that is helping India”.
Going forward in 2024, Gohil said he expects FPIs investment flow to be better than 2023 both on the equity side as well as debt (where inclusion in JP Morgan global indices will bring in about $25 billion) front.
“The only risk to FPI’s continued interest in India next year is the possibility of Chinese economy gaining some traction. Then flows can potentially go out of India to China”, Gohil said.
Total FPI stock of equity holding in India crossed $700 billion for the first time ever this year and stood at $723.6 billion as of fortnight ended December 15 this year, official data showed.
FPIs keen on Bonds too
FPIs have in December 2023 pumped in record ₹ 15,545 crore in the debt segment, positioning themselves for the opportunities from India’s inclusion in JP Morgan EM bond indices in June 2024. In October and November 2023, total inflows from FPIs on the bonds front stood at ₹6,381 crore and ₹14,860 crore respectively.
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