The heavy outflow of FPI in March has offset the investments made in the previous months and the annual FPI went into negative.
As foreign portfolio investors started to gain trust in the Indian market, the coronavirus-led disruptions in the markets and businesses forced them to dramatically pull out FPI in the month of March 2020. The net FPI withdrawal in March stood at a lifetime high of nearly Rs 1.13 lakh crore, according to the National Securities and Depository Limited (NSDL). The heavy outflow of FPI in March has offset the investments made in the previous months and the annual FPI went into negative. For the first time in history, the FPI investors turned net sellers for the two consecutive years, FY19 and FY20.
While FPI investors pulled out Rs 38,930 crore in FY19, they withdrew nearly Rs 22,100 crore in FY20, going by the data provided by NSDL. The Indian market opened for FPI in FY 1992-93 but before FY19, only three fiscals – FY99, FY09, and FY16 – registered a net withdrawal.
After Finance Minister Nirmala Sitharaman announced a super-rich tax on FPI investors, the market sentiment floored and a sudden pullout was observed in FPIs. However, later when the Finance Ministry denied rolling out any such tax, the investments restarted to come back into the Indian market. Even the first two months of the calendar year – January & February – received modest FPI despite a global slowdown and disruptions in the global markets.
But March saw an unprecedented shutdown in markets and businesses, leading to a major disruption in the stock markets as well. The bloodbath in the stock markets terrified the investors about the ongoing risk. Meanwhile, the government had planned to increase the investment limit of FPI investors in corporate bonds from 9 per cent to 15 per cent.