FPIs' Investment Value In Indian Equities Rises 15% To $651 Bn In September Quarter

Relevance: GS3 - Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
(Source: The Hindu, 11/17/2023)

Why in the news?

• Recently, a report prepared by Morningstar Inc., a financial services firm, revealed that the investment value of FPIs in Indian Equities rose 15% in the July-September 2023 period as compared to the same period in the previous year.

What has the Morningstar report revealed? 

• The value of Foreign Portfolio Investor investments in Indian equities rose from $566 billion to $651 billion between September 2022 and September 2023.
  • The growth in the investments during the July-September 2023 period was found to be 15% higher than the corresponding period in 2022.
  • The growth during the quarter was 4% higher than the $626 billion during the April-June quarter.
• However, FPIs' contribution to Indian equity market capitalization fell from 17.33% to 16.95% quarter on quarter.
• There was a net infusion of foreign investment in the Indian equity markets amounting to around $5.38 billion in the September quarter.
  • In July, FPIs invested $5.68 billion in July.
• However, the rate of investments slowed down in August to $1.48 billion due to global macroeconomic concerns such as the rise in crude oil prices and inflation risks.

What are the factors influencing FPI investments? 

• Strength of the Indian economy: The steady earnings growth recovery and stable macro fundamentals of the Indian economy, as well as the challenges faced by the Chinese economy, are major reasons behind the rise in FPI investments.
  • Foreign investors have been interested in investing in the Indian economy due to its resilience amid global uncertainty.
• Improvements in other markets: Improvement of bond yields in the USA resulted in some foreign investors migrating towards the greater risk/reward profile of the US Treasuries versus the riskier markets.
  • The intermittent rally in Indian equity markets led to the valuation of the equity markets exceeding the comfort level of investors. 
  • Consequently, foreign investors became net sellers in the Indian equity markets in September, selling around $1.78 billion in assets.
  • Economic uncertainties in the US and eurozone as well as concerns about global economic growth have made foreign investors risk-averse.
• Other factors: Investors have adopted a wait-and-watch approach on account of various factors such as higher crude prices, inflation, and the potential for elevated interest rates.
  • The domestic economy has also been affected by subnormal monsoon activity in India and its potential impact on inflation.
  • As a result, FPIs have become net sellers having sold assets worth $2.95 billion in October and $697 million up to November 10th.

FAQs

Question: What is portfolio investment?

Question: What is Foreign Direct Investment?

MCQs

Question: Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly? (UPSC CSE 2019)

1. Certificate of Deposit 
2. Commercial Paper
3. Promissory Note 
4. Participatory Note

Answer: (d) See the Explanation

Question: Which of the following would include Foreign Direct Investment in India? (UPSC CSE 2012) 

1. Subsidiaries of foreign companies in India
2. Majority foreign equity holding in Indian companies
3. Companies exclusively financed by foreign companies
4. Portfolio investment

Select the correct answer using the codes given below:

1. 1, 2, 3 and 4 
2. 2 and 4 only
3. 1 and 3 only 
4. 1, 2 and 3 only

Answer: (a) See the Explanation