As the year 2020 draws to a close, the FPIs have so far made a net inflow of ₹1.42 lakh crore — the highest level of such investment in a calendar year since 2002.
This is the fifth time in history when net investment by foreign investors in equities has crossed ₹1 lakh crore mark in a year. Prior to this, the feat was achieved in 2019, 2013, 2012 and 2010, when overseas investors infused a net sum of ₹1.01 lakh crore, ₹1.13 lakh crore, ₹1.28 lakh crore and ₹1.33 lakh crore respectively.
Excess liquidity, attractive valuations and weakness in the US dollar propelled foreign investors to flock to the Indian stock market in a big way.
However, if there is another wave of the coronavirus pandemic resulting in re-implementation of lockdown measures, that could dampen sentiments and turn foreign investors risk-averse.
“With some major developments on COVID-19 vaccine front, India stands to benefit. Also, growth in the economy will improve investor sentiments and their outlook towards India. From the risk-reward profile perspective, these aspects make India a good investment destination,” said Himanshu Srivastava, Associate Director – Manager Research, Morningstar India.
Net outflows made by FPIs have been a little over Rs 1 lakh crore in 2020 so far, though hybrid instruments witnessed a net inflow of more than Rs 10,000 crore, as per the latest data available with depositories.
On the other hand, debt markets have seen FPIs turn net sellers in 2020 as they withdrew a massive amount of Rs 1.07 lakh crore from debt, however, they invested a net amount of Rs 23,350 crore in debt-VRR.
The voluntary Retention Route (VRR) channel was introduced by the Reserve Bank of India (RBI) in March 2019 to attract long-term and stable FPI investments into debt markets.
Also, FPI flows got a boost from a positive surprise in second-quarter corporate earnings and some structural reforms in labour, agriculture and financial sectors, said Alok Agarwala, Chief Research Officer of Bajaj Capital.
The year 2020 marked the biggest outflow by foreign investors from debt markets since 2002 when bifurcation of net investment data became available.
Taking all asset classes together, FPIs have made a net investment of Rs 68,200 crore ($9.3 billion) in the Indian capital markets (equity, debt, debt-VRR and hybrid) so far in 2020, while a few days of trading is yet to take place.
The previous record outflow was in 2013 when FPIs pulled out a net sum of Rs 50,849 crore from debt markets. Also, an exodus to the tune of Rs 47,795 crore was seen from such instruments in 2018.