The value of foreign portfolio investors’ (FPI) holdings in domestic equities reached $552 billion in three months to March 2021, a surge of 7 per cent from the preceding quarter, according to a Morningstar report.
This was largely on the back of robust net inflows from FPIs, coupled with a strong performance of the Indian equity markets.
“As of the quarter ended March 2021, the value of FPI investments in Indian equities stood at $552 billion, which was considerably higher than the $518 billion recorded in the previous quarter,” the report noted.
As of March 2020 quarter, the value of FPI investments in Indian equities was $281 billion.
However, overseas investors’ contribution to domestic equity market capitalisation dropped marginally during the period under review to 19.9 per cent from 20.1 per cent in December quarter.
Offshore mutual funds form an important component of total foreign portfolio investment, apart from other large FPIs, such as offshore insurance companies, hedge funds, and sovereign wealth funds.
During January-March 2021, FPIs invested a robust $7.64 billion in Indian equities. In relative terms, it was much lower than the net inflows of $19.21 billion recorded in the previous quarter, but in absolute terms it is a significant amount, nonetheless, the report pointed out.
According to the report, positive domestic and global factors ensured that the interest of foreign investors in the Indian equity markets remains intact. Further, the announcement of the government’s pro-growth budget was lauded by investors.
In addition, there was a gush of liquidity in the global financial markets after the US announced a $1.9 trillion pandemic relief package. This ensured regular flows of assets into emerging markets like India.
Also, a rejig in some of the global indexes resulted in flows of assets into Indian equities, the report noted.
However, overseas investors turned net sellers in the month of April and offloaded net assets worth $1.6 billion in the wake of second intense wave of Covid-19.
“Expectedly, this fanned concerns over the risks to economic recovery caused by the lockdown being imposed in several states to contain the spread of virus,” the report said.
While this dashed hope of an early economic recovery, it also spooked foreign investors, leading them to adopt a wait-and-watch stance regarding investing in Indian equities, it added.