FPI in Indian equities drop 11% to $542 bn in Q4

The value of foreign portfolio investment (FPI) in Indian equities was at $542 billion in the March quarter of 2023, a decline of 11 per cent from the preceding year, largely due to the exodus of foreign money from the domestic market, according to a Morningstar report.

In comparison, the value of FPI in Indian equities was $612 billion in the January-March quarter of 2022.

On a quarter-on-quarter basis, the value of FPI in Indian equities fell by 7 per cent from $584 billion recorded in the three months ended December 2022.

This came following a surge in their investment value for three quarters in a row.

The decline led to FPIs' contribution to Indian equity market capitalization falling to 17.3 per cent during the year under review from 17.8 per cent for March 2022.

After withdrawing record funds in 2021–22, foreign portfolio investors continued their sell-off in the last fiscal too and pulled out Rs 37,631 crore from Indian equities amid aggressive rate hikes by central banks globally.

Since the start of foreign investment in 1993, this is for the first time foreign portfolio investors (FPIs) sold consecutively for two financial years.

They sold equity worth Rs 1.4 lakh crore in FY22 and the pace of selling slowed down to Rs 37,632 crore in FY23, data with the depositories showed.

Before these outflows, FPIs invested a record Rs 2.7 lakh crore in equities in 2020-21 and Rs 6,152 crore in 2019-20.

In the financial year 2022-23, most of the major central banks started hiking the interest rate, which resulted in the departure of hot money from emerging markets including India.

This resulted in the unprecedented rise in prices (Inflation) in most of the economies.

Apart from global monetary tightening, volatile crude, rising commodity prices along with Russia and Ukraine conflict led to an exodus of foreign money in 2022-23.

On the domestic front too, the scenario was not encouraging.

Rising inflation continued to be a cause for concern, and to tame that, RBI also hiked rates, which cast a shadow on the growth prospects of the domestic economy, said Himanshu Srivastava, Associate Director - Manager Research, Morningstar India.

Another important aspect that led to the outflows from domestic stock markets was its high valuation, compared with other relatable markets, he added.

This also resulted in foreign investors booking profit here and shifting focus towards other markets which were attractive on the valuation and risk-reward front.

Apart from equities, FPIs pulled out Rs 8,938 crore from the debt markets in the period under review after infusing Rs 1,628 crore in 2021-22.