Foreign Portfolio Investors Invest USD 626 Billion in Indian Equities: Morningstar

The value of foreign portfolio investors’ holdings in the domestic equities reached USD 626 billion in the three months ended June 2023, which was 20 per cent higher from the year-ago period, according to a Morningstar report.

This significant increase can be attributed to the strong performance of the Indian equity markets as well as the inflow of funds from foreign portfolio investors (FPIs).

The Morningstar report states that the value of FPIs’ investments in Indian equities rose from USD 523 billion in June 2022 to USD 626 billion at the end of June 2023.

Compared to the previous quarter, the value of these investments increased by 15 per cent from USD 542 billion in March this year.

Contribution to Indian Equity Market Capitalization

The surge in FPI investments has also resulted in a marginal increase in their contribution to the Indian equity market capitalization. In the quarter under review, FPIs’ contribution stood at 17.33 per cent, compared to 17.27 per cent in the previous quarter.

Factors Driving FPI Investments

The report highlights that the strong growth in FPI investments can be attributed to various factors:

  • Prospects of interest rate direction in the US
  • Global inflation numbers
  • China’s economic situation
  • Positive domestic indicators

These factors, combined with positive sentiments throughout the quarter, have encouraged FPIs to invest in the Indian equity markets.

Positive Market Conditions

The quarter started positively as concerns about the banking crisis in the US and Europe began to fade. Additionally, expectations that the US Federal Reserve would slow its pace of rate hikes in the future further attracted foreign investments into Indian equities.

The Indian markets also witnessed consolidation, leading to a rationalization of valuations. The resilience of the domestic economy amid uncertain times further prompted FPIs to focus on Indian stocks.

Continued Investments

FPIs remained net buyers in April, May, and June. The positive momentum has continued, with substantial investments in the Indian equity markets in July and August.

Challenges and Volatility

Despite the positive trend, there were challenges that affected the flow of investments. FPIs adopted a cautious approach due to the downgrade of the US credit rating by Fitch and the US Federal Reserve raising its benchmark lending rate. The report notes that the underlying global economic scenario remains uncertain, which could lead to volatile flows from FPIs.

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