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Foreign Portfolio Investors make a comeback

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A remarkable comeback has been performed by Foreign portfolio investors after pulling out a record Rs 61,973 crore from Indian equities in the month of March this year. A pull out that dragged down the benchmark indices Sensex and Nifty by as much as 23 per cent.

However, only in the span of eight months of the current financial year, net foreign portfolio investment (FPI) into equities jumped the highest-ever in any financial year. The recorded jump amounted to Rs 1,40,295 crore as against the one in 2012-13 when the net FPIs stood at Rs 1,40,033 crore, now the second-highest.

When we talk about Foreign portfolio investors, we mean both foreign individual investors and foreign institutional investors (FIIs).

Just in the first 20 days of the eleventh month of the year, net inflows added up to Rs 44,378 crore. The enormous investment has led to a 10.8 per cent or 4,267-point rise in Sensex.

 

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In August, as the country witnessed slow and gradual procedural unlocking, inflows started picking up. Under a faster and wider reopening of the economy from August to November, FPIs added up to Rs 1,03,216 crore which is almost three-fourth of the total inflows of Rs 1,40,295 crore in the financial year to date.

Despite the Indian economy is one of the hardest hit due to the novel coronavirus pandemic and recording a contraction of 23%, the investors have reacted positively to the markets leading to the all-time highs that benchmark indices have touched during the pandemic.

This rally in stock markets recorded this month is driven by a series of positive news, some of which are as follows:

  1. The outcome of US Presidential elections: Organized in the first week of November, Joe Biden winning the presidential elections of the United States fuelled FPI inflows into emerging markets such as India and led to a sharp rally in equity markets worldwide.
  2. COVID-19 vaccine announcements: Successive vaccine announcements by Pfizer and BioNTech, and Moderna and Russia reintroduced hope of recovery in the minds of individuals and the comfort buoyed market sentiments over the last 10 days. Experts say that capital is bound to flow in as longer-term uncertainty gets addressed by vaccines, in turn, rapidly changing the market prices. The news of another Covid-19 vaccine, ‘Covishield’, being manufactured by Serum Institute of India (SII) under an agreement with Oxford-AstraZeneca has also been another successful factor in the surge of Indian equity markets. Adar Poonawalla, CEO, SII, at a Leadership Summit by Hindustan Times said that Covishield will be made available to the public by March-April 2021 and that the vaccine can be stored at temperatures between 2°C and 8°C. He also said that the vaccine would cost somewhere between Rs 500 and Rs 600 in the private market.

In the month of November alone domestic investors pulled out as much as Rs. 34,649 crore from the markets showing their profit-booking mood instead of long term investments contrary to the FPIs who have considered a medium-to-long-term horizon in their India investment decisions. Over the last four months between August and November, the total outflow by Domestic Institutional Investors from domestic equities to date amounts to Rs 60,903 crore.

According to market analysts and participants, once these domestic investors will also start investing, the markets would likely rise further to reach greater heights and create new records. The Chief Executive Officer (CEO) of a leading financial services firm says, “There is a huge amount of liquidity, and savings have also risen significantly over the last few months. A sizable part of that money will come to equity markets as there are not many options as of now and that is likely to keep the markets strong”.

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