FPIs’ India Assets Top $700 b With Robust Inflows in 2023

Analysis of All-Time High FPI Investment Flows into India Crossing $700 Billion Mark

Analysis for Layman

The article discusses the significant investments made by foreign portfolio investors (FPIs) in Indian equities in 2023, reaching a record total of over $700 billion. These investments were supported by $20 billion of inbound flows this year.

The financial services, capital goods, and auto sectors have attracted the most foreign investments. The robust influx of funds can be attributed to India’s strong growth prospects and supportive government policies.

Although FPI ownership in the total Indian market value is currently lower than the peak of 29% in 2021, the increased allocations to infrastructure, financials, and manufacturing stocks indicate long-term confidence.

FPIs’ India Assets Top $700 b With Robust Inflows in 2023

Impact on Retail Investors

The sustained FPI inflows in Indian markets since July 2022 bring stability and optimism to the equity market. Retail investors can benefit from the confirmation of a long-term bull market.

It is advisable for retail investors to align their sectoral allocations with the areas where foreign investors are placing their bets, such as financials, capital goods, industrials, and autos. Selecting funds or stocks with high FPI ownership, like HDFC Bank, Kotak Bank, L&T, and Maruti, can be a wise strategy as they tend to perform well during bull markets.

Investors should consider staying invested for the long haul to ride this wave rather than attempting to time the market. Maintaining some cash reserves can also provide opportunities to add positions during market dips.

Impact on Industries

The financial services sector directly benefits from the substantial FPI flows, with leading banks and non-banking financial companies (NBFCs) receiving strong support. Infrastructure, capital goods, and engineering stocks also stand to gain as the capital expenditure cycle gains momentum.

The auto sector, which had been experiencing a prolonged downturn, is now seeing a return of positivity, driven by rural recovery in addition to urban and export demand. On the other hand, the IT services sector may relatively underperform as the allocation to the sector drops, despite its strong medium-term prospects.

In the event of worsening global risk sentiment, FPIs tend to sell off pharma, telecom, and FMCG stocks during a flight to safety. Therefore, defensive sectors could experience corrections if the global environment becomes uncertain, impacting overall market sentiment.

Long Term Impact

The strong interest from FPIs over the long term supports India’s capital requirements for growth, enhances rupee stability, and increases the share of global capital in domestic markets. It also sets the stage for the inclusion of the Indian Rupee (INR) in global bond indices as investment limits continue to rise.

Short Term Impact

However, short-term volatility can arise if the robust FPI flows start to retreat due to global economic concerns or domestic risks. Sudden large outflows by FPIs can sporadically trigger market-wide corrections. Therefore, it is essential for retail investors to closely monitor the trends in FPI investments, as they can significantly influence market sentiment.

Potential Impact of Increased FPI Inflows on Indian Companies

The significant inflow of foreign portfolio investments (FPIs) into India presents both opportunities and challenges for various sectors and companies:

Indian Companies Potentially Gaining:

  • Financial Services: Companies like HDFC Bank, ICICI Bank, Kotak Mahindra Bank, and Bajaj Finance, holding significant weight in indices and attracting high FPI interest, could see increased share prices and potentially improved valuation.
  • Infrastructure & Construction: Companies like Larsen & Toubro, Adani Ports, ACC, and Ambuja Cements, witnessing strong FPI inflows and record weight in the portfolio, might benefit from higher demand for their stocks and potentially increased capital raising opportunities.
  • Capital Goods: Companies like ABB India, Siemens, and Bharat Heavy Electricals, experiencing significant on-year FPI investment growth, could see valuation improvements and potentially better access to foreign investments for expansion projects.
  • Automobiles: Companies like Tata Motors, Maruti Suzuki, and Mahindra & Mahindra, receiving positive FPI flows and reaching record weight in the portfolio, might benefit from increased investor confidence and potentially higher share prices.
  • Healthcare: Companies like Dr. Reddy’s Laboratories, Cipla, and Apollo Hospitals, receiving FPI inflows, could see improved market sentiment and potentially better access to foreign capital for research and development initiatives.

Indian Companies Potentially Impacted:

  • Oil & Gas: Companies like ONGC, Reliance Industries, and Oil India, facing FPI outflows, might experience short-term selling pressure and potentially lower valuations.
  • Media & Entertainment: Companies like Zee Entertainment, PVR, and Star TV, witnessing FPI outflows, could face investor concerns and potentially weaker share prices.
  • Information Technology: While not experiencing significant outflows, Infosys, TCS, and Wipro, seeing lower FPI allocation compared to previous peaks, might see slower price appreciation compared to other sectors attracting stronger FPI interest.

Global Companies Potentially Gaining:

  • Foreign Asset Management Firms: Firms like BlackRock, Vanguard, and Fidelity Investments, managing large FPI portfolios in India, could see increased profitability and fee income due to higher asset under management.
  • Global Infrastructure & Construction Companies: Companies like Siemens AG, Caterpillar Inc., and Volvo Group, with potential business opportunities in India’s infrastructure sector, might benefit from increased investments driven by FPI inflows.
  • Global Investment Banks: Investment banks like Goldman Sachs, JPMorgan Chase, and Citigroup, facilitating FPI investments in India, could see increased fees and advisory income due to the strong inflows.

Global Companies Potentially Impacted:

  • Emerging Market Funds: FPI inflows into India might divert some investments away from other emerging markets like China and Brazil, potentially impacting their attractiveness to foreign investors.
  • Global Companies in Competing Sectors: Foreign companies competing with Indian companies in sectors like automobiles, capital goods, and infrastructure might face stronger competition due to increased resources and investments available to Indian firms.

Market Sentiment:

  • Positive Sentiment: The news of strong FPI inflows likely creates a positive sentiment in the Indian stock market, with investors optimistic about the country’s economic potential and growth prospects.
  • Sector Rotation: Investors might shift their focus towards sectors like financials, infrastructure, and automobiles, experiencing strong FPI inflows and record weightage in the portfolio.
  • Volatility: While overall sentiment might be positive, short-term fluctuations in specific sectors and individual companies’ stock prices can occur due to profit-taking, changing economic conditions, and global events.

Remember, this analysis is based on limited information and the actual impact on specific companies and sectors will depend on several factors, including future FPI inflow patterns, individual company performance, and broader economic developments. Conducting further research and considering individual company financials and industry trends is crucial before making investment decisions based on this news.

Citation: ET Bureau, “FPIs’ India Assets Top $700 b With Robust Inflows in 2023”, Dec 22, 2023.

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