Indian After strong investments in stock markets in 2023, foreign investors reduced their investments to a large extent in 2024. The net inflow this year was more than Rs 5,000 crore. The main reasons for this were investors adopting a more cautious approach amid high domestic valuations and geopolitical uncertainties. Vineet Bolinjkar, head of research at Ventura Securities, said that looking towards 2025, Indian equities may see an improvement in the flow of foreign portfolio investors (FPIs). This will be supported by a cyclical uptick in corporate earnings, especially in domestic-oriented sectors like capital goods, manufacturing and infrastructure.
However, high valuations and cheap alternatives in other emerging markets such as ASEAN and Latin America may hamper these flows. Apart from this, he said, the concerns created due to prolonged global recession may affect investors’ sentiments and their interest towards risky assets. On the other hand, Firoz Aziz, Deputy CEO (Deputy Chief Executive Officer), Anand Rathi Wealth Limited, said that geopolitical tensions, central bank interest rate cuts and possible US tariff restrictions can create favorable conditions for FPI inflows in Indian markets. .
How much did you invest?
According to data available with depositories, so far foreign portfolio investors (FPIs) have made a net investment of more than Rs 5,052 crore in the Indian stock markets and Rs 1.12 lakh crore in the debt market (as of December 24). Earlier, a net investment of Rs 1.71 lakh crore was made in the stock market in 2023, driven by optimism about India’s robust economic infrastructure. In contrast, the highest net selling of Rs 1.21 lakh crore was recorded in 2022 due to aggressive rate hikes by global central banks. However, before this, FPI had invested in three years 2019, 2020 and 2021.
FPIs were selling in these 5 months
In the year 2024, FPIs were sellers in the months of January, April, May, October and November. The sharp decline in FPI inflows in 2024 was due to global and domestic factors. Himanshu Srivastava, associate director, manager research, Morningstar Investment, said the low investment in the Indian stock market was mainly due to high valuations, which led investors to invest in the attractively priced Chinese stock market. This shift was further fueled by a series of stimulus measures launched by China to boost economic growth, which made its stock market increasingly attractive. Additionally, increasing geopolitical tensions, particularly the Israel-Iran conflict, are increasing risk aversion, pushing investors towards safer assets.
Why did the confidence of FPI decrease?
He said caution ahead of the US presidential election and concerns about a lower rate cut in US federal rates next year despite this year’s 100 basis point cut further weakened sentiment. On the domestic front, high valuations, weak corporate earnings for the September quarter, fears of weak results for December, rising inflation, slow gross domestic product (GDP) growth and a weak rupee, said Narendra Singh, ‘Smallcase’ Managing Director and Founder, Growth Investing. Such factors have reduced investor confidence. However, despite the volatility, FPI showed signs of recovery in December. Net inflows so far have been over Rs 20,071 crore, indicating renewed interest in Indian stock markets.
