Foreign portfolio investors (FPIs) have pumped in $20 billion in Indian equities till December 20 – the second highest in the last decade. In 2020, FPIs invested $23 billion in the Indian markets.What is remarkable is that among Asian economies, only Japan is ahead of India, attracting $30 billion. South Korea, which ranks third in Asia this year, received close to $9 billion in inflows.Andrew Holland, CEO, Avendus Capital Alternate Strategies, said that with the US Federal Reserve (Fed) signalling rate cuts, foreigners will look towards India for the next phase of growth. “Investors appreciate the fact that India is a domestic market-driven economy. The consumption story is great, with people climbing up the value chain,” he said.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services added that there is near-consensus now in the global investing community that India has one of the best prospects. So, FPIs will continue to flock to our markets.What has made India a safer bet during the year is that other economies, especially in Asia are struggling with difficult times. While Sri Lanka went through an economic crisis, Taiwan had tensions with China, and others like Thailand had elections. In addition, any concerns over political stability in India have been put to rest for the time being, following the recent Assembly election results in the Hindi heartland.FPIs generally take a cautious stance in the run-up to the elections, as they seek stability. The confidence of a clear majority for the ruling party, however, has made this year an exception, say market players.However, things may not go one way completely. According to U R Bhat, co-founder and director at Alphaniti Fintech, FPIs give precedence to global factors. “FPIs will keep an eye on the Middle East war, Russia-Ukraine war, and crude prices before increasing bets on EMs. Any re-escalation will be a concern,” he said.He pointed out that FPIs will be looking for a fresh trigger to increase their bets, as they usually look at EMs as a basket and not at countries in isolation. He added that FPIs will also look to take some money home, which could lead to some outflows in the near term.An analyst said the last few days of 2023 could see a lull thanks to the holiday season. At the same time, any uptick in Covid cases owing to the new variant, or escalation in geopolitical issues could spook foreign investors.It is pertinent to note that FPIs had withdrawn close to $4.8 billion in September and October alone when bond yields in the US had hardened to record high. However, the tide turned from November when yields started cooling off. The Fed dovish stance has also given confidence to markets that rate cuts are on the anvil.In what was a clear sign of a shift in focus towards growth, the Fed indicated three rate cuts in 2024 to the tune of 75 bps. The dollar index, which weighs the dollar against major global currencies, has declined from 102.87 to 102.21 over the past week.
