While foreign flows into India’s equity markets in 2015 may have been the worst in the last four years at just $4.32 billion, the amount is nevertheless the seventh highest among countries tracked by Bloomberg. Further, this is the third largest fund flow among Asian and emerging markets (EMs) after Brazil and Taiwan. As such, experts say, the Indian market continues to be a favoured destination for foreign funds given its fairly strong macroeconomic prospects and potential for growth.
Andrew Holland, CEO, Ambit Investment Advisors, attributed the foreign inflows to good prospects for the economy as the reforms process gained momentum. “Investor sentiment about Indian markets is improving as the government is pushing reforms like GST (goods and services tax), allowing FDI (foreign direct investment) into more sectors of economy and the new bankruptcy code. Earnings are also on the verge of improvement. If you see the corporate earnings during Q2FY16, the operating margins of majority of the companies have improved,” Holland said.
After a lull, economic reforms appeared to be picking up again with the government announcing changes in FDI norms across 15 sectors earlier this week, making it easier and more attractive for foreign firms to invest in the country. The 15 sectors included defence, banking, construction, single-brand retail, broadcasting and civil aviation.
The Foreign Investment Promotion Board (FIPB) can now clear proposals of up to Rs 5,000 crore, up from Rs 3,000 crore earlier.
Foreign portfolio investors (FPIs) invested $16.16 billion in Indian equities in 2014 while the quantum was $19.7 billion for 2013. CY12 was the best year for India in terms of FPI inflows as foreign funds invested $24.54 billion.
During 2015, India accounted for 33.2% of foreign funds across Asia and EMs; it had attracted 33.8% of Asian and EM inflows in 2014 and 62.6% and 44.9% in the years prior. While FPIs had invested more than $7 billion between January and August, sales during August and September amid concerns about China trimmed inflows by nearly 40%.
In August alone, FPIs sold equities worth $2.59 billion in the cash segment, making it the worst monthly outflow in more than seven years. In September, the amount of selling was $860.62 million, data showed, impacting India’s share of inflows within the Asian and EM universe.