The value of FPIs (Foreign Portfolio Investors) holding in Indian equities reached USD 738 billion in the three months ended December 2023, marking a surge of 13 per cent from the preceding quarter, driven by the strong performance of the domestic stock market, according to a report by Morningstar.
The value of FPIs investment was at USD 651 billion in the September quarter of the current fiscal.
On a year-on-year basis, the value of such investments rose 26 per cent from USD 584 billion in December 2022.
"This could be attributed to the good performance of the domestic equity markets as well as strong net inflows from FPIs," the report noted.
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However, FPIs' contribution to Indian equity market capitalisation fell marginally during the quarter under review to 16.83 per cent from 16.95 per cent in the previous quarter.
After withdrawing USD 5.38 billion in the September quarter, foreign investors were net buyers in the Indian equity markets to the tune of USD 6.07 billion in the three months ended December 2023 owing to the decline in US Treasury bond yields. Also, the listing of IPOs and the fall in crude prices brought foreign investors back.
"The political stability following the Bharatiya Janata Party's victory in three major state elections created a favorable climate for investors. Additionally, the robust performance of the Indian economy compared to other similar economies drew investor interest," the report noted.
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However, this momentum could not be maintained, and FPIs turned into net sellers in January this year and took out USD 3.10 billion from Indian equities on multiple factors including profit booking. Moreover, cautiousness has continued to prevail so far in February.
"The Indian equity markets touched all-time high levels in January, which led FPIs to book some profits. Moreover, uncertainty over the interest-rate scenario led them to stay on the sidelines and wait for further cues before investing in emerging markets like India. Heavy selling by FPIs was also triggered by them offloading their stake in HDFC Bank given its disappointing quarterly results," the report noted.
Besides this, escalating geopolitical tensions in the Middle East, the US Fed's hawkish comments regarding interest rates, and a sharp surge in the US Treasury bond yields were also some of the reasons for FPIs to shift their focus away from emerging markets, it added.
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