The report noted that while the enhancement in FPI limits has reinvigorated the pace of inflows into the debt market
On a day when the key indices scaled new life-time highs on strong inflows, a research report has said foreign portfolio investors are on course to pump in a record USD 28-35 billion by March–which is a four- five-fold spike over FY17. The benchmark indicies-Sensex and the Nifty-has scaled 28 per cent in calendar year 2017 over 2016 and since then the markets scaled new peaks in the first week of the new year with both the indices closing at new life-time peaks with today being another record close. Foreign portfolio investors (FPIs) had pumped in Rs 48,400 crore or USD 7 billion into the domestic equities in FY17 and this is set to witness a four-five-fold increase in the year to March at USD 28-35 billion.
“We expect net inflows to be Rs 1.8-2.2 trillion (USD 28-35 billion) for FY18. Already they have pumped in Rs 95,600 crore (USD 15 billion) in the first half of this fiscal, against Rs 48,400 crore (USD 7 billion) for the entire FY17,” domestic rating agency Icra said in a report today. According to Icra senior vice president Karthik Srinivasan, FPI investments in the current fiscal are driven by the debt segment which received a net inflow of Rs 1.17 trillion in the April-November period with positive net inflows across all months. “Supported by healthy inflows, the utilisation of the FPI investment limit in G-secs and corporate debt increased in the current fiscal year despite an enhancement in the permissible investment limits,” Srinivasan said. “The equity segment, however, witnessed a net outflow of FPI investments in the August-September period amidst concerns on earnings growth, rising valuations and slowing growth,” he added.
The report noted that while the enhancement in FPI limits has reinvigorated the pace of inflows into the debt market, the trend is expected to moderate in the coming months, given the high utilisation levels for G-secs and corporate bonds. However, it observed that the recent rate hike by the US Fed in December 2017, the ongoing balance-sheet trimming by the US government and the passage of the Tax Cuts & Jobs Act of 2017 have pushed up US treasury yields. “This has in-turn contributed to a spike in yields for domestic debt securities, which would help to maintain their relative attractiveness for international investors,” it said. Icra expects the debt segment to register net FPI inflows of Rs 1.5-1.6 trillion (USD 24-26 billion) in 2017-18.
The agency expects Rs 27,000-59,000 crore (USD 4-9 billion) of FPI flows into equity in 2017-18, noting that such inflows would remain dependent on the pace of economic growth and the strength of the recovery in corporate earnings. Meanwhile, the report said the number of FPI registrations with the Securities and Exchange Board has surged in the past couple of years, with over 4,500 FPIs registered between April 2016 and October 2017 including 1,064 in the current fiscal. “This increase in FPI registration largely stems from the regulatory compliance requirements following the introduction of the new FPI regulations in FY 2015,” the report said. Migration of FPIs from ‘deemed FPIs’ to ‘registered FPIs’ status, and healthy investment inflows this year augers well and reflects international investors sustained interest in the domestic markets,” it concluded.