FPI investments in Indian equity market drops 11% to $584 billion in December

The total value of foreign portfolio investors’ (FPI) holdings in the Indian equity market dropped to $584 billion at the end of December 2022. This amount is lower by 11% lower than $654 billion at the end of December 2021.

Although there has been a decrease in the investment value year-on-year, the FPIs’ investment value has grown quarter-on-quarter, reported Moneycontrol. The value of investment of FPIs in Indian equities stood at $566 billion in the quarter ended September 2022. This figure grew by 3% in December and was the second consecutive quarter which saw growth.

In addition, the contribution of FPIs to market capitalization saw an increase as well. FPIs hold a stake in Indian equities to the tune of 17.12% compared to 16.97% in the September quarter.

One of the major reasons why FPIs are pulling out of the Indian equity market is the underperformance of equities and the sustained outflow of foreign money from the Indian markets.

Indian equities along with their global counterparts saw significant growth in 2020 and 2021. However, 2022 was a rough phase for equity markets across the world. Due to rising interest rates, soaring inflation and geopolitical tensions, equity markets reeled under pressure throughout the year.

However, compared to other markets, the Indian markets managed to perform well despite the slowdown. With S&P BSE Sensex and S&P BSE Mid-cap delivering returns of 4.44% and 1.38% respectively, Indian markets were one of the few markets in the world that delivered positive returns in the year.

Meanwhile, concerns over the high valuations of Indian markets led many foreign investors to flee away to other emerging markets in search of more attractive valuations.

Another reason that severely weighed down Indian equities was the outflow of foreign funds from the domestic market. Foreign Institutional Investors (FIIs) were on a selling spree in 2022 and ended up selling stocks worth $16.5 billion (around Rs 1.21 lakh crore). Aggressive interest hikes by major central banks globally in order to control skyrocketing inflation amid escalating geopolitical tensions significantly dented investor sentiment globally.

In 2023 so far, FPIs have remained net sellers of Indian equities amid rising concerns that the US Federal Reserve will continue raising interest rates longer than expected due to a series of disappointing economic data in the US, indicating a slow pace of moderation in inflation.

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