In an unprecedented move, foreign portfolio investors (FPIs) have invested a staggering ₹77,388 crore into Indian capital markets this December, marking the most robust monthly infusion in 2023. This surge is primarily attributed to diminishing global uncertainties and the strong performance of India’s domestic economy. Data from the National Securities Depository Ltd (NSDL) shows FPIs channeled ₹57,313 crore into Indian equities and a substantial ₹20,075 crore into debt, hybrid, and other categories, culminating in a total net investment of ₹77,388 crore as of December 22.
This influx outstrips the previous high of January 2023, when FPIs directed ₹1.09 lakh crore towards Indian markets. This influx is a significant turnaround from the net withdrawal of ₹47,561 crore recorded between September and November. The renewed investor confidence stems from a combination of factors including the softening of US-China trade tensions, favorable outcomes from the UK general election, signals from the US Federal Reserve of a halt in its monetary tightening, and encouraging domestic economic indicators.
Significant global developments such as the US-China phase one trade agreement on December 13 have alleviated concerns over impending tariffs on Chinese goods and eased global trade tensions. The UK’s general election on December 12 witnessed Prime Minister Boris Johnson’s Conservative Party securing a decisive victory, paving the way for Brexit by January 31, 2023. The US Federal Reserve’s decision to maintain interest rates on December 11 hints at a cautious approach to monitor the impact of its prior rate cuts.
Domestically, India’s economic indicators have shown promising signs with the GDP growth in the second quarter of 2023-24 rebounding to 8.4%, a significant increase from the 5% in the preceding quarter. Industrial production in October 2023 surged to 3.8%, buoyed by festive demand and a favorable comparison against previous months. November 2023 saw inflation cool down to 5.54%, and the current account deficit for the second quarter of 2023-24 narrowed to 0.9% of GDP, indicating a more robust economic situation.
The government’s reform initiatives, including corporate tax cuts, divestment of public enterprises, resolution of non-performing assets, and increased infrastructure spending, have further bolstered FPI confidence. For instance, the corporate tax reduction in September 2023 positioned India competitively on the global tax stage. Planned divestments in significant public sector entities aim to bolster fiscal health, while infrastructure projects are set to stimulate investment and economic growth.
The total net investment of FPIs in 2023 has soared to ₹1.57 lakh crore in equities and ₹60,000 crore in other segments, marking it as the most lucrative year for Indian markets since 2014. This capital influx has also propelled the Indian stock market to new heights, with significant indices like Sensex and Nifty witnessing substantial gains. The Indian rupee has strengthened against the dollar, reflecting positive market sentiment.
Looking ahead to 2024, the forecast for FPI investments remains optimistic, bolstered by supportive global and domestic factors. However, potential challenges such as uncertainties in the US-China trade agreement, complexities in Brexit negotiations, and domestic economic pressures may pose risks to this positive outlook. The FPIs’ continued investment will depend on a careful assessment of these evolving opportunities and risks.
