FPIs pour in $6.1 bn in Apr-July; equity segment gets a major chunk

The country witnessed foreign portfolio investment (FPI) of $6.1 billion during April-July of this fiscal year, reversing a negative trend observed in the same period of last fiscal when there was an outflow of $9.3 billion. 

Despite heavy buying by foreign investors in the last month of 2018-19 (FY19), foreign portfolio investors remained net sellers of $5.5 billion in the market. The  first  quarter  of  2019-20  (FY20) witnessed  heavy  foreign  portfolio  buying  in both  debt  and  equity  markets  aggregating  $6.1  billion, the data from the Centre for Monitoring Indian Economy showed. 

However, an announcement  of  increase  in  surcharge on  the  super-rich in  the  Union Budget  FY20  has  weighed  on  portfolio  investors  and  witnessed outflows, especially in the equity segment. 

Research by CARE Ratings ascribes firm FPI inflows to a strong and clear mandate of the incumbent government, reflecting political stability and the continuum of polices as well as falling yields in advanced economies such as the US, the UK, and Germany. A stronger rupee and moderation in crude oil prices have also contributed to the FPI inflows. In FY19, the sustained depreciation in the rupee from 65.02 from the beginning of FY19 to a multi-year low of 74.39 weighed on foreign portfolio investors.

Of the net inflows received in FY20 so far, 54 per cent are in the equity segment, 34 per cent in debt, and the rest hybrid. All three segments have got net inflows between April 1 and July 19 this year, against the outflows in the comparable period of last year. 

FPI inflows have been the highest in the financial sector at 34.5 per cent, of which 19.4 per cent is in banks and the balance 15.2 per cent in other financial services. Other sectors like software and services (10.4 per cent), oil and gas (97.8 per cent), and auto (4.4 per cent) also account for a significant share in FPI. There is FPI in public sector entities like the National Bank for Agriculture and Rural Development and Food Corporation of India, aggregating to ~6,044 crore.

The portfolio investment from the US is the highest at 32.8 per cent. This is 19.76 per cent higher than Mauritius, which has the second-highest investment at 13.04 per cent. Within  the  top  10  countries,  European  countries  (namely  Luxembourg,  the UK,  Ireland,  Norway,  and the Netherlands) account for 22.5 per cent of outstanding investment. Mauritius  is  the  only  tax  haven  country  which  stands second among  the  top 10  countries based on outstanding FPI. 

Seven  out  of  the  10  countries have a share  of  equity  investment  in the  total outstanding investment, which is more  than 80 per cent. Four countries — the US, Mauritius, the UK, and Ireland have an equity investment share which is more than 90 per cent. Among the top 10 countries, Singapore has the lowest share of 65 per cent investment in the equity segment. 

As on July 22, 2019, of the available investment limits in different categories of debt instruments, foreign investors have invested 72.9 per cent in central government securities, 3.4 per cent in state development loans, and 67.8 per cent in corporate bonds.