New Delhi: Foreign investors are flocking to the Indian capital markets in a big way with a net inflow of over $30 billion (more than Rs 2 lakh crore) of so-called ‘hot money’ in 2017, with equities alone getting over $8 billion — an amount bigger than the cumulative investment of the previous two years.
As the year draws to a close, the Indian stock market seems to have regained its status as one of the most favoured destinations for foreign portfolio investors (FPIs), as they have taken their net investment position in equities so far in 2017 to Rs 55,000 crore — the highest in three years after Rs 20,500 crore in 2016 and Rs 17,800 crore in 2015. However, this remains a far cry from the heady levels seen earlier — Rs 97,000 crore in 2014, Rs 1.13 lakh crore in 2013 and Rs 1.28 lakh crore in 2012.
However, a sharper turnaround was seen in 2017 in terms of FPI inflows into debt markets where the the net investments have soared to a staggering Rs 1.5 lakh crore ($23 billion) after a net outflow of about Rs 43,600 crore in 2016. Marketmen, however, believe that this kind of FPI flows may not continue in 2018 as the withdrawal of liquidity and rate hikes in developed economies pick up. Also, the inflation cycle is likely to turn following increase in commodity prices and recovery in consumption demand.
The overall net inflow has made 2017 as the best period for Indian capital markets (equity and debt) in terms of overseas investment in three years with combined net inflow of over Rs 2 lakh crore (more than $30 billion). The higher inflow in 2017 compared to the previous two years could be attributed to expectation of a pickup in the domestic economic growth, experts said.
“Although demonetisation and Goods and Services Tax (GST) implementation has met with initial short-term hurdles and impacted economic growth, it reinforced conviction in the government’s resolve in bringing economic reforms and so has the decision to recapitalise public-sector banks,” Himanshu Srivastava, senior analyst manager research at Morningstar India said.
Further, domestic markets, having witnessed a relatively subdued growth in 2015 and 2016, were well placed from valuation perspective compared to other markets, which also turned the attention of foreign investors towards India. Besides, euphoric sentiment among corporates on account of improvement in ‘ease of doing business’ ranking coupled with government showing commitment in speeding up development and economic reforms before going for elections in 2019 bode well for foreign investors’ confidence, said Dinesh Rohira, founder and chief executive at 5nance.com.
This year’s inflow has pushed FPIs’ cumulative net investment in the Indian equity market, since being allowed over two decades ago in November 1992, to Rs 8.75 lakh crore. The cumulative figure for debt securities has also grown to Rs 4.2 lakh crore — taking the total for both debt and equities to Rs 13 lakh crore ($252 billion).
The capital poured in by FPIs is often called ‘hot money’ because of its unpredictability, but these overseas entities have still been among the most important drivers of Indian stock markets. In terms of sectors, banking, housing finance and auto have seen consistent FPI inflows.
Moreover, PSU bank recapitalisation by the government has further boosted investor confidence in financial services sector, Sharekhan AVP Research Lalitabh Shrivastawa said.
This has also helped March becoming the best month of 2017, when FPIs pumped in nearly Rs 31,000 crore. Thereafter, such inflow continued till July but the pace of capital infusion slowed down.