Foreign portfolio investors (FPIs) have pumped in a net Rs 20,574 crore into the Indian capital market in June so far amid increasing inflows into emerging markets due to high liquidity. As per latest depositories data, FPIs invested a net Rs 22,840 crore in equities but pulled out Rs 2,266 crore from the debt segment between Jun 1-12. This translates into a cumulative inflow of Rs 20,574 crore.
Prior to this, FPIs were net sellers for three consecutive months. They pulled out Rs 7,366 crore in May, Rs 15,403 crore in April and a record Rs 1.1 lakh crore in March. Harsh Jain, co-founder and COO at Groww, said, “As governments all over the world are taking measures to stimulate their economies, we are seeing more printing of money which is leading to higher liquidity which is a big factor behind more money flowing into emerging markets like India.”
However, Himanshu Srivastava, associate director- manager research, Morningstar India, said FPI inflow in the second week of June was lower as compared to the first week. “Last week, rights issue of Reliance Industries and a stake sale of 2.8 per cent by Uday Kotak in Kotak Bank were the major draw for the foreign investors.
“In the absence of any major trigger, FPIs went back to adopting a measured approach towards India in the wake of spike in COVID-19 cases in the country,” he said. He further said FPIs have shifted their focus towards safer investment options like gold or US dollar as against investing in fixed income securities of emerging markets like India, given that the risk levels here are relatively high and returns not commensurate with the same. Almost all the world economies are staring at a recession.
Plus, simmering tension between the US and China also does not augur well for emerging markets like India, which are more vulnerable to geopolitical risks, he said. Though foreign investors have started to invest in the Indian equity market, it needs to sustain to call it a change in trend and not a short-term investment opportunity.
If the situation worsens, foreign investors can again take a flight to safety, Srivastava noted. “So far, there are no signs of the coronavirus curve flattening in India… Going ahead, the revival of the Indian economy will be one of the key drivers for foreign investors’ decision to invest in Indian markets,” he added.