New data shows FPIs’ investment value rose to $626bn in Q2

During the three months ending June 2023, foreign portfolio investors’ (FPIs) holdings in domestic equities surged to $626 billion, marking a 20% increase compared to the same period the previous year. This growth was attributed to strong performance in the Indian equity markets and robust net inflows from FPIs.

According to the Morningstar report, FPIs’ investments in Indian equities climbed from $523 billion in June 2022 to $626 billion in June 2023. On a quarter-on-quarter basis, these investments saw a 15% rise from $542 billion recorded in the preceding three months, which ended in March of the same year.

The report highlighted that this uptick contributed to FPIs’ share of Indian equity market capitalisation, edging up slightly from 17.27% in the March quarter to 17.33% in the reviewed quarter.

After withdrawing approximately $3.2 billion from Indian equities in the March quarter, FPIs experienced a significant shift in sentiment in the three months ending June. They re-entered the market strongly, making a substantial net investment of $12.5 billion, the report revealed.

The impetus behind these flows was multifaceted. The report pointed to factors such as the trajectory of interest rates in the United States, global inflation trends, China’s economic challenges, and domestic indicators, all contributing to the optimistic sentiment among investors during the quarter.

As the quarter commenced, concerns surrounding banking crises in the US and Europe began to fade. Additionally, expectations solidified that the US Federal Reserve would likely adopt a slower pace of rate hikes in the future, making Indian equities an attractive investment option for foreign capital.

Furthermore, the domestic equity market experienced some consolidation in valuation towards the end of the previous quarter, prompting rationalisation. The resilience of the Indian economy amid global uncertainties also bolstered FPIs’ confidence in Indian stocks.

April, May, and June saw FPIs consistently buying into the market. Their investment momentum continued in July and extended into August without significant interruptions.

However, the journey was not without challenges. FPIs exercised caution in response to global credit ratings agency Fitch downgrading the US credit rating from AAA to AA, affecting overall sentiment. The US Federal Reserve’s decision to raise its benchmark lending rate by 25 basis points in July, signaling the possibility of more hikes ahead and eliminating the likelihood of near-term rate cuts, also had an impact on FPI sentiment.

The report concluded that while the investment flows from FPIs remained strong, the global economic landscape remained uncertain and subject to rapid changes, which could introduce volatility to FPI flows.