Foreign investors have made a noteworthy return to the Indian equity and debt markets, injecting over Rs 2 lakh crore in the fiscal year 2023-24. This resurgence comes amidst optimistic sentiments surrounding India’s robust economic fundamentals despite challenges in the global landscape.
Cautious Optimism and Progressive Outlook
Bharat Dhawan, Managing Partner at Mazars in India, highlighted a cautiously optimistic outlook for 2025, citing progressive policy reforms, economic stability, and attractive investment avenues as key drivers for sustained Foreign Portfolio Investor (FPI) inflows. However, he emphasized the need for strategic planning and agility in navigating potential global geopolitical influences that could introduce intermittent volatility.
Strong FPI Inflows in FY24
In the current fiscal year, FPIs have displayed a robust presence in Indian markets, with a net investment of approximately Rs 2.08 lakh crore in equities and Rs 1.2 lakh crore in the debt market. These investments collectively amounted to Rs 3.4 lakh crore, as per data from depositories.
Contextualizing the Resurgence
This remarkable resurgence follows a period of outflows from equities in previous financial years. Factors such as aggressive rate hikes by central banks globally contributed to net outflows from Indian equities in recent years.
Factors Driving FPI Interest
Himanshu Srivastava from Morningstar Investment Research India highlighted that foreign investors were drawn to Indian equities due to various factors, including inflation and interest rate scenarios in developed markets, currency movements, crude oil prices, geopolitical conditions, and the resilience of India’s domestic economy.
Noteworthy Shifts in Debt Investments
Interestingly, FPIs also demonstrated a significant shift in their debt investments, pouring Rs 1.2 lakh crore into the debt market in the current fiscal year. This shift was fueled by attractive yields on Indian sovereign debt compared to US treasury bonds.
Optimistic Future Prospects
The upcoming inclusion of Indian government bonds in JP Morgan’s benchmark emerging market index is anticipated to attract substantial inflows into Indian debt markets. This development, along with expected global policy rate tapering, is expected to sustain the trend of FPI inflows into Indian debt.
Market Dynamics and FPI Behavior
The fiscal year 2023-24 witnessed fluctuations in FPI behavior, with periods of strong inflows followed by brief spells of outflows. Factors such as China’s reopening post-lockdown and global macroeconomic conditions influenced FPI investment decisions during this period.
Concluding on a Positive Note
Despite intermittent fluctuations, the fiscal year concluded on a positive note with FPIs exhibiting a bullish stance in the Indian equity market. The overall trend reflects renewed investor confidence in India’s economic resilience and growth prospects.
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