By Ruchit Purohit
Foreign capital flows have ebbed in the current calendar year after a bumper $23-billion inflows in 2020. While net inflows remained in positive territory in 2021, it’s been the second worst year after 2018 for Indian equities as far as foreign portfolio investments are concerned. Overall net inflows into equities during the calendar year dropped to $3.9 billion, as investors pulled out $3.8 billion in the second half of the year.
Foreign portfolio investors dumped Indian shares after the benchmarks hit new lifetime highs in October this year. Despite the outflows from secondary markets, FPIs continued to bet strongly on the primary market during the period, show data available on NSDL & CDSL. During the calendar year, FPI investments in the primary market hit $10.7 billion compared with the $9.8 billion they invested in calendar 2020.
Analysts say global investors were sitting on huge profits since 2015 and after a stellar run of markets in 2021, the outflows during the year can be seen as healthy profit-booking by these investors.
Further, the US Federal Reserve’s tapering programme, prospects of rate hikes, continued impact of Covid-19 and expensive valuations of Indian markets against other emerging markets also weighed on the sentiment and kept global investors on the edge during the year.
“We had a spectacular run this calendar year, and India was the best performing market among all other emerging markets, so we saw some profit booking towards the year-end, especially in November and December. This is the worst flow since 2018 — when FPIs were net sellers to the tune of Rs 33,014 crore. This is also quite surprising, where we have usually seen when the market moves, FPI flows also move in line. One should understand that they are the largest owners of equity in India, so any sell-off/rise is directly correlated,” Rahul Shah, senior vice-president, group advisory leader-PCG, broking & distribution, Motilal Oswal Financial Services, told FE.
The primary markets, however, enjoyed heightened interest from these investors during calendar year 2021 with inflows of $10.7 billion during the period. Interestingly, between October and November, a large chunk of the foreign investments were diverted to primary markets from secondary markets, as some big ticket public issues like Paytm, Nykaa, and other big new-age techhnology companies tapped the capital markets.
In the previous calendar year, non-resident investors bought Indian equities worth $23.37 billion in CY2020, which is so far the best after 2012, show data available on depositories. Around 26% of the inflows in the last 30 years by FPIs in Indian equities came between 2020-2021. Further, according to a report released by CLSA in November, in the 12 months from April 2020 through the end of March 2021, net purchases of Indian equities by non-resident investors surged by $38.4 billion (or by 1.8% of total market capitalisation) versus a cumulative $8.7 billion recorded in the five previous years.