Waves of overseas portfolio investment valued at over Rs. 51,000 billion spilled into the Indian market in 2021 as foreign investors became net buyers of domestic securities for the third year in a row, while excess global liquidity and other factors steered their investment pathways up and down.
With the global financial system still filled with liquidity, emerging market investments, especially stocks, could remain the preferred route of investment for many months to come, experts said.
With stocks sizzling for much of 2021 and the economy slowly returning to recovery, foreign portfolio investors (FPIs) became net buyers, but their investments are compared to net inflows of Rs 1.03 lakh crore in 2020 much lower. And most recently the annual volume was lower than the investment of Rs 1.35 lakh crore in 2019.
Reflecting the roller coaster ride of foreign portfolio investment flows in the Indian market this year, FPIs have been net buyers for six months, including three months continuously from January. These investors continued to make net investments in June, August and September and we saw net FPI outflows for the remaining six months.
Excess liquidity in the global financial system, resurgent concerns about the coronavirus pandemic, rising global inflation and a higher valuation of Indian stock markets are among the factors that have influenced the FPIs.
Data with the custodians showed that foreign investors invested Rs.26,001 billion in stocks, Rs.23,222 billion in the debt segment and Rs.1,848 billion in hybrid instruments.
As a result, the total net inflow rose to 51.068 billion rupees between January and December 28, 2021.
Among the relatively lower FPI inflows this year, Milind Muchhala, Executive Director of Julius Baer, cited the strengthening of the dollar index, outflows from various emerging markets, including India, and profit bookings as the country is a big outperformer compared to the US Emerging markets as key factors up to the end of September quarter.
Himanshu Srivastava, Associate Director – Manager Research at Morningstar India, said FPI flows were driven by excess liquidity in the global financial system due to the stimulus measures announced by central banks and the resurgence of the pandemic.
He also mentioned that rising global inflation, the US Federal Reserve signaling an earlier than expected reversal in pandemic stimulus programs, a higher valuation of Indian stock markets, and the advent of the Omicron variant of FPI flows at various times in 2021 have influenced.
The inflow of foreign funds into the domestic market has been quite robust in the first three months of this year due to several factors including the government’s growth-promoting budget, the decline in coronavirus cases, the introduction of the COVID vaccine and the improvement in economic figures.
Srivastava pointed out that the surge of liquidity in global financial markets after the US announced a $ 1.9 trillion pandemic bailout and an adjustment to some global indices had led to inflows into Indian stocks.
However, the sharp rise in COVID cases in the following months frightened foreign investors.
As the bearish trend reversed, FPI interest in Indian stocks rebounded and they returned to invest in June after two previous months of net outflows.
Compared to optimistic sentiment in June, FPIs became more cautious in early September with the Fed’s restrictive statement that it could hike rates much earlier than planned.
“ Plus, rising valuations, the surge in oil prices, and the firm US dollar made them suspicious of the short-term risks. In addition, lower chances of further rate cuts due to global inflation and the rising dollar contributed to the outflow, ”said Srivastava.
VK Vijayakumar, chief investment strategist at Geojit Financial Services, said the FPIs for India had turned negative since October 2021 and many overseas brokers downgraded India from overweight to neutral and resorted to sustainable sales.
Although FPIs were sellers in the secondary market, investing in IPOs as anchor investors and selling when the lockdown ends has paid off for FPIs except at Paytm in calendar year 2021, “he said.
This year, the 30-share benchmark Sensex is up more than 21 percent, reflecting the sustained upward trend in domestic equities.
In December, FPI inflows in emerging markets were mixed, with South Korea, the Philippines, Thailand, and Indonesia seeing inflows of $ 2,443 million, $ 1,711 million, $ 190 million and $ 55 million, respectively, while Taiwan saw outflows reported $ 15 million, according to Shrikant Chouhan, head – Equity Research (Retail) at Kotak Securities.
Sanjiv Bajaj, joint chairman and managing director of Bajaj C -ital, said that while the long-term outlook for Indian stocks looks good and has a promising scenario in the coming years, short- to medium-term volatility in 2022 may not be ruled out.
According to experts, markets like India with relatively higher economic growth could attract more foreign investment.
(This story was not edited by Devdiscourse staff and is automatically generated from a syndicated feed.)