FPIs net investments cross Rs 51,000 crore in 2021 vs Rs 1.03 lakh crore in 2020; India still attractive in 2022: Experts

Foreign portfolio investments (FPIs), who were net sellers in the cash segment of Indian equity markets in 8 out of the 12 months in 2021, cumulatively poured in over Rs 51,000 crore into the Indian markets in 2021.

Overseas investors turned net buyers of domestic securities for the third straight year, while excess global liquidity and other factors steered the ebb and flow of their investing ways, said a PTI report.

The Foreign Portfolio Investors (FPIs) turned net buyers’ but their investment is much less compared to net inflows of Rs 1.03 lakh crore in 2020, and Rs 1.3 lakh crore in 2019.

The big investment came on the debt market front. Foreign funds bought bonds worth over Rs 33,000 crore under Voluntary Retention Route (VRR). By contrast, their net stock purchases amounted to Rs 26,000 this year, showed data from NSDL.

VRR is to enable Foreign Portfolio Investors (FPIs) to invest in debt markets in India. The objective is to attract long-term and stable FPI investments into debt markets while providing FPIs with operational flexibility to manage their investments, said the RBI website.

Experts are of the view that despite recent selling seen in equity markets, India still remains an attractive investment destination for FIIs for the year 2022. They have poured in over $10bn in primary markets alone.

“India is an attractive investment destination due to visibility of growth, stable government, material reforms, diversity of sectors, strong foreign exchange reserves, and low currency risk. These factors stand-out and ensures continuity of FII interest in India,” Vinit Sambre, Head- Equities, DSP Investment Managers, said.

“Their recent sell-off has to be seen in the context of rich valuations for Indian equities on one hand and rising global risk due to news of Fed tapering, US dollar strengthening, inflation, etc on the other,” he said.

The most important factor to note is while FIIs have pulled out USD 5.2 billion CYTD21 net from the secondary market but they have invested USD 10.4 billion in the primary market (IPOs) in the same period, which shows that India still remains a country of choice for FIIs.

Mirroring the roller-coaster ride for foreign portfolio investment flows in the Indian market this year, FPIs emerged as net buyers for six months, including three months continuously starting from January.

Excess liquidity in the global financial system, the resurgence of concerns over the coronavirus pandemic, rising global inflation as well as higher valuation of Indian equity markets are among the mix of factors that influenced FPIs, suggest experts.

Strengthening of the dollar index, outflows from various emerging markets, including India could be immediate triggers for the selloff, but investors should not be worried, as the long-term story still remains intact.

“We believe that the selling by FII is due to a multitude of factors like recent hawkish commentary by Fed Chair Jerome Powell, significant supply in the primary markets,” Niraj Kumar, Chief Investment Officer at Future Generali India Life Insurance Company Ltd, said.

“Valuation premium of Indian markets over other Emerging markets & significant outperformance of Indian markets versus other large EM’s like China, Korea, Brazil which has necessitated the reallocation of funds towards these markets,” he said.

Kumar further added that given that India’s long-term structural growth story appears promising, we believe that the current FII selling is just a near-term phenomenon & FII’s will continue to stay invested in Indian markets from a long-term perspective.

(With inputs from PTI)

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)