Foreign Portfolio Investors (FPIs) inflows into India in 2023 beat several records on both equity and debt front, reflecting the positive sentiments of these investors towards the country.
The net FPI inflows of ₹1, 71,107 crore ($20.61 billion) into Indian equities in 2023 was the highest ever, surpassing the 2020 level of ₹1,70,262 crore. The current year was a major turnaround year given that 2022 saw FPIs investment outflow of ₹1.21 lakh crore.
On the debt side, the year 2023 saw the highest ever FPI flow at ₹68,663 crore (over $8 billion) with the month of December 2023 notching the highest monthly inflows of ₹18,302 crore this year.
Hopes of an interest rate cut by the US Fed as well as the RBI in 2024, and the possibility of the incumbent government in India returning for a third term in the general elections next year fuelled their appetite for Indian equities and debt securities in December 2023.
Also December 2023 was an all time monthly high with equity inflows of ₹66,134 crore, surpassing the previous all time monthly high of ₹62,016 crore recorded in December 2020.
In the calendar year 2023, eight of the twelve months saw net inflows into equities from FPIs.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said “2023 has witnessed big investment by FPIs thanks to the sharp uptick in flows in December. FPI inflows have sharply turned positive in December with total buying of ₹66134 crores”.
He said that the steady decline in U.S. bond yields have caused this sudden change in the strategy of FPIs. In December, FPIs were big buyers in financial services which explains the resilience of this segment in December. FPIs also bought in sectors like autos, capital goods and telecom.
“Since 2024 is expected to witness further declines in U.S. interest rates, FPIs are likely to increase their purchases in 2024 too, particularly in the early months of 2024 in the run up to the General elections”, Vijayakumar said.
For the first time ever, Total FPI stock of equity holding crossed $700 billion this year. It stood at $723.6 billion as of fortnight ended December 15 this year, official data showed.
FPIs have doubled down on India in December 2023 despite geopolitical tensions and concerns in certain quarters that the markets may be overvalued. Since 2024 is expected to see atleast three US Fed rate cuts and with India’s bond inclusion in global bond indices set to become a reality in June 2024, the flows from FPIs are only going to be better than 2023, say capital market observers.
Interestingly, the FPI’s aggregate net purchase of over $20.5 billion in 2023 is still lower than domestic institutional Investors (DII), who have pumped in record ₹1.8 lakh crore in 2023. Both FPI and DII inflows have led to Nifty50 going up 20% in 2023, Midcaps up by 46% and Small Caps by 55%.
Over the past decade, FPI inflows have surpassed those of DII only for three years, in sharp contrast to earlier trend of foreign flows having a strong influence in determining the trajectory of Indian stock markets. The DIIs have been flush with liquidity mainly because of strong inflows from retail investors through mutual fund SIPs.