fpi-inflows-highest-ever-over-rs-14-lakh-crore-in-eight-months

In News

  • Foreign portfolio investors have staged a remarkable comeback after pulling out a record Rs 61,973 crore from Indian equities in March 2020 dragging down the benchmark indices Sensex and Nifty by 23 per cent.
  • In just eight months of the current financial year, net foreign portfolio investment (FPI) into equities jumped by Rs 1,40,295 crore, the highest-ever in any financial year. In 2012-13, net FPIs stood at Rs 1,40,033 crore (the second highest now).
  • Foreign portfolio investors include both foreign individuals and foreign institutional investors (FIIs).

Foreign Portfolio Investment

  • Foreign portfolio investment (FPI) consists of securities and other financial assets passively held by foreign investors.
  • It does not provide the investor with direct ownership of financial assets and is relatively liquid depending on the volatility of the market.
  • FPI is part of a country’s capital account and is shown on its Balance of Payments (BOP).
     
    • The BOP measures the amount of money flowing from one country to other countries over one monetary year.
  • The investor does not actively manage the investments through FPIs, he does not have control over the securities or the business.
  • The investor’s goal is to create a quick return on his money.
  • FPI is often referred to as “hot money” because of its tendency to flee at the first signs of trouble in an economy.
  • FPI is more liquid and less risky than Foreign Direct Investment (FDI).
     
    • A Foreign Direct Investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. FDI lets an investor purchase a direct business interest in a foreign country.
  • FPI and FDI are both important sources of funding for most economies. Foreign capital can be used to develop infrastructure, set up manufacturing facilities and service hubs, and invest in other productive assets such as machinery and equipment, which contributes to economic growth and stimulates employment.
  • Securities and Exchange Board of India (SEBI) brought new FPI Regulations, 2019, replacing the erstwhile FPI Regulations of 2014.
  • In the first 20 days of November, net inflows added up to Rs 44,378 crore, which has led to a 4,267 point or 10.8 per cent surge in Sensex.
  • Inflows started picking up in August with more liberal unlock guidelines, and a faster and wider reopening of the economy. Accordingly, FPIs during August-November add up to Rs 1,03,216 crore, almost three-fourth of the total inflows of Rs 1,40,295 crore in the financial year till date.
  • FPIs have taken a positive call on India despite its economy being one of the hardest hit due to the Covid-19 pandemic, said market experts pointing to the all-time highs that benchmark indices have touched.
  • The rally this month is driven by a series of good news. The outcome of US Presidential elections in the first week of November fuelled FPI inflows into emerging markets and led to a sharp rally in equity markets worldwide, including India.
  • Successive announcements of Covid-19 vaccine by Pfizer and BioNTech, Moderna and Russia, provided comfort and buoyed market sentiments over the last 10 days.
  • While FPIs seem to have considered a medium-to-long term horizon in their India investment decisions, domestic investors seem to be in a profit-booking mode. Domestic institutional investors (DIIs) pulled out a net Rs 32,649 crore in November alone. The total outflow by DIIs from domestic equities over the last four months between August and November till date amounts to Rs 60,903 crore.
  • Market participants feel that once domestic investors, sitting on the sidelines, also start investing, the markets will likely rise further. There is a huge amount of liquidity, and savings have also risen significantly over the last few months. A sizable part of that money will come to equity markets as there are not many options as of now and that is likely to keep the markets strong. 
  • News around the pricing and timeline of ‘Covishield’, a Covid-19 vaccine being manufactured by Serum Institute of India (SII) under an agreement with Oxford-AstraZeneca, has also perked up the markets. Adar Poonawalla, CEO, SII, Thursday said that Covishield will be made available to the public by March-April 2021. It can be stored at temperatures between 2°C and 8°C, and should cost between Rs 500 and Rs 600 in the private market.