Unlike EM peers, India continues to attract FPIs in equities

By Urvashi Valecha

India has yet again emerged as a preferred choice for foreign portfolio investors (FPIs), with net inflows into equities touching $3.07 billion between March and so far in October. The inflows are in stark contrast to broad-based equity sell-off that other emerging markets (EMs) continue to witness.

According to data from Bloomberg and NSDL, India’s equity markets after the pandemic-led rout in March saw an FPI outflow of $8.3 billion. From May to August, FPIs remained buyers in the Indian markets, pumping in $11.4 billion in total. October so far has seen FPIs buying equities worth $821 million. In September, there was an outflow of $767.2 million.

At a net inflow of $3.07 billion between March and so far in October, Indian markets are better placed than most emerging equity markets. For instance, countries such as Thailand, Brazil, Taiwan and South Korea have seen outflows of between $7.7 billion and $20.1 billion from March till date in October. India also remains the only emerging market in Asia besides China to see FPI inflows for the calendar year.

According to market experts, foreign capital inflows were helped by activity in the primary market since August. Also, blue-chip financial names such as ICICI Bank, Axis Bank and India’s largest mortgage lender hit the capital markets to raise funds.

Vinod Karki, vice-president, ICICI Securities, said, “Initially, Indian markets too were underperforming, but we saw strong FPI inflows in August of around $6 billion, although a substantial portion of this inflow was towards primary market issuances in the form of QIPs.”

Following the Covid-19 pandemic, many blue-chip companies from the Nifty, especially those from the financial sector, decided to raise funds to cushion themselves from the economic impact of Covid-19.

Karki said India’s external sector is comfortable, there is a current account surplus and the country has not overstretched its borrowing programme as fiscal stimulus has been controlled, which means debt levels will not rise as much as some of the other economies which have done large fiscal stimulus. This has led to better foreign flows towards India.

A relatively-better handling of Covid-19 crisis and a well diversified stock market have helped India attract inflows compared to other EMs. UR Bhat, director, Dalton Capital Advisors (India), said, “The economic impact of the Covid-19 pandemic has been quite varied across countries, and in terms of fatalities and recoveries from the infection, India has had the least relative pain. Also, the Indian market presents a large number of companies that have high corporate governance standards. In addition, the Indian investment basket has the breadth of sectors like banking, telecom, pharmaceuticals, oil and gas, auto, consumer and technology among others, which may not be the case in many other emerging markets. This is one of the reasons for FPIs being buyers in the Indian markets.”

Going forward, experts are of the view that the flows returning to EMs will not be uniform and will depend on the impact of Covid-19 on their economies and how the recovery plays out in their respective economies.