Understanding the Foreign Portfolio Investors’ Inflows and Outflows in India in 2024

Understanding the Foreign Portfolio Investors’ Inflows and Outflows in India in 2024 (FPIs) play a significant role in the Indian stock market. Their investment decisions can significantly impact market sentiment and stock prices. In 2024, FPI activity has been a mixed bag, with periods of both inflows and outflows. Let’s delve deeper into what’s driving these trends and their implications for the Indian market.

Understanding FPI Activity:

• Inflows: These occur when FPIs invest money in Indian stocks and bonds. This increases the demand for Indian assets, pushing stock prices up and injecting liquidity into the market.
• Outflows: When FPIs sell their holdings in Indian assets and withdraw their money, it’s called an outflow. This can lead to a decrease in demand for Indian stocks, potentially causing prices to fall and impacting market liquidity.

Factors Influencing FPI Activity in 2024:

• Global Economic Conditions: A strong global economy generally encourages FPI inflows into emerging markets like India. Conversely, a weak global economic outlook can lead to risk aversion and FPI outflows.
• Indian Economic Performance: FPIs closely monitor India’s economic growth, inflation rate, and fiscal stability. Positive economic indicators can attract FPI inflows, while concerns about the economy can trigger outflows.
• Interest Rate Policies: Changes in interest rates by the Reserve Bank of India (RBI) can influence FPI decisions. Higher interest rates can make Indian assets more attractive compared to other markets, leading to inflows.
• Domestic Political Environment: Political stability and policy predictability are crucial for FPIs. Uncertainties or policy changes can deter investments and lead to outflows.
• Valuation of Indian Stocks: FPIs are also influenced by the valuation of Indian stocks. If they perceive Indian stocks to be overvalued, they might withdraw investments. Conversely, attractive valuations can attract inflows.

A Glimpse into FPI Activity in 2024 (as of May 29, 2024):

Data suggests that FPI activity in 2024 has been a mix of inflows and outflows. While there was a net inflow of ₹2 lakh crore in equities during the financial year (FY24), there have been some recent outflows, particularly in April and May.

Looking Ahead: What to Expect?

Predicting future FPI activity is challenging. However, some factors could influence their decisions:

• Global economic trajectory: Continued global economic recovery could encourage FPI inflows into India.
• Pace of Indian economic growth: Sustained economic growth in India could attract FPI interest.
• RBI’s monetary policy: If the RBI raises interest rates, it could make Indian assets more attractive.
• Outcome of the 2024 general elections: Political stability and investor-friendly policies after the elections could lead to FPI inflows.

The Indian Market’s Resilience:

Interestingly, the Indian stock market has shown resilience despite recent FPI outflows. This can be attributed to several factors:

• Strong domestic investor participation: Increased participation from domestic mutual funds and retail investors has helped offset FPI outflows.
• Improved corporate performance: The strong performance of many Indian companies has boosted investor confidence.
• India’s growth story: India’s long-term economic growth potential continues to attract investors.