Foreign promoters and investors selling minor stakes drags net FDI to record lows  

Net foreign direct investment (FDI) inflows for fiscal year 2024 falling to the lowest level since 2007, at $10.6 billion has raised concerns about MNCs and foreign investors moving out of India.

But a businessline analysis shows that the high repatriation numbers are primarily led by foreign promoters, FDI investors and PE and VC investors making the most of the sharp rally in Indian stock market by selling minor parts of their stake. Outward FDI (FDI by India into other countries) was also higher by 14 per cent in FY24, compressing the net FDI.

While gross FDI inflow in FY24 was unchanged from the previous fiscal year at $71 billion, record high repatriation/divestment by foreign direct investors of $44 billion brought down net inflows.

• Also read: Stagnation in gross FDI flows needs attention

Foreign promoters pare stakes

Our analysis of corporate filings showed 66 instances of foreign promoters in listed companies in India selling stake ranging from 1 per cent to right up to 30 per cent. The top 10 among such sales in FY24 totalled to ₹94,400 crore. In FY23, there were only 44 such sales.

Singtel and other investors’ sale of around 2 per cent in Bharti Airtel for over ₹14,100 crore, sale of 6 per cent stake in Vedanta by its foreign promoters Finsider International, Twinstar Holdings and others for over ₹7,400 crore and Whirlpool’s parent entity reducing 24 per cent stake in its Indian subsidiary (they still retain 51 per cent) in a ₹3,850 crore deal are a few significant ones.

In all cases, investors indicated that their intention was to unlock value. “We believe in India for the long term, but if we have a business which is trading at 50 times multiple and your own company trades at a lot lower, it is basic arbitrage,” Whirlpool Corporation CEO, Marc Bitzer told CNBC in February.

Rising interest rates and to some extent volatility on account of market uncertainty have been key motivations for the investors to move a part of their allocations from emerging markets back to the US, says Jaykrishna Gandhi, Head, Institutional Equities, Emkay Global Financial Services. “Further higher PE (price earning) levels are also enticing for investors to book profits and eventually come back when valuations are better,” he added. As per Emkay Global’s analysis, dividend paid to foreign promoters alone added up to ₹8,188 crore in FY24.

• Also read: Finance Ministry notifies new FDI limits for satellite-related activities under FEMA

PE/VC investors exit

With attractive markets and a slew of recent tech IPOs, calendar year 2023 saw $12 billion (₹1-lakh crore) in exits by global PE-VCs compared to $11 billion (₹80,000 crore) in 2022. In January to April 2024 alone, PE and VC firms clocked $5 billion (₹41,000 crore) in exits. These include Warburg Pincus exit from Kalyan Jewellers, Paytm seeing the complete exit of Alibaba Group’s Ant Financial amid its crisis situation and SoftBank and Tencent offloading shares in PB Fintech (Policybazaar).

Arun Natarajan, Founder of research firm Venture Intelligence, said that rising exits by PEs is to be viewed as a positive for Indian enterprises, as it signals a confidence in the ecosystem. “This is part of the PE cycle where they are now recording exits in portfolio firms that went public recently,” he adds. 

Rishi Shah, partner and senior economist, Grant Thornton Bharat, said that global value chains have been shifting and trends such as nearshoring are causing a disruption in traditional financial flows. “The rise of Mexico as a gateway into the American markets may well be another factor,” he added.