FPIs Appetite For Indian Stocks Steady In Start Of New Year; 2023 Saw Rs 1.71 Lakh Cr Inflows; What To Expect?

Foreign portfolio investors (FPIs) have shown bullish response to Indian stock market despite a volatile trend at the start of the New Year. FPIs made a strong buying to the tune of more than Rs 1.71 lakh crore in 2023, after record level selling of over Rs 1.21 lakh crore in 2022 when markets underwent volatility due to geopolitical tensions, multi-year high inflations and aggressive rates hike cycle. In 2024, with expectations of further decline in key interest rates, FPIs are likely to continue their buying trend in domestic equities.

As per data from NSDL, FPIs have pumped Rs 2,361 crore in Indian equities in the first two trading sessions of 2024.

In 2023, FPIs invested Rs 1,71,107 crore in Indian stocks due to an extended pause in rate hikes, cooling in inflation, and resilient economic growth. Sensex and Nifty clocked new all-time highs in December 2023 as well, making the Indian market expensive in the world. Also, the Indian economy is leading in the global economy, emerging as an attractive investment hub for foreign investors.

Due to extremely challenging macro-economic conditions after Russia invaded Ukraine in early 2022, FPIs had sold about Rs 1,21,439 crore in Indian stocks.

Nevertheless, they have been buyers since 2023. The trend is expected to continue even in 2024.

Sensex closed the year 2023 with gains of a massive 11,072.47 points or 18.10%, while Nifty 50 surged by 3,533.95 points or 19.42% to end at 21,731.40. In the last month of the year, Sensex and Nifty touched a new record high of 72,417.01 and 21,801.45.

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, "2023 has witnessed big investment by FPIs thanks to the sharp uptick in flows in December. FPI inflows which were negative in the previous 3 months have sharply turned positive in December with total buying of Rs Rs 66134 crores. This figure includes the buying through stock exchanges and investment in the primary market. The total FPI inflows in 2023 stand at Rs 171106 crores. ( Source: NSDL)."

He added that the steady decline in U.S. bond yields has caused this sudden change in the strategy of FPIs. In December, FPIs were big buyers in financial services which explains the resilience of this segment in December. FPIs also bought in sectors like autos, capital goods and telecom.

Since 2024 is expected to witness further declines in U.S. interest rates, Vijayakumar said, "FPIs are likely to increase their purchases in 2024 too, particularly in the early months of 2024 in the run-up to the General elections."

As per Nirmal Bang's website, FPIs involves an investor buying foreign financial assets. It involves an array of financial assets like fixed deposits, stocks, and mutual funds. All the investments are passively held by the investors. Investors who invest in foreign portfolios are known as Foreign Portfolio Investors.

Further, the brokerage highlighted that Foreign Portfolios increase the volatility. As a result, it leads to increased risk. The intent of investing in foreign markets is to diversify the portfolio and get some handsome return on investments. Investors expect to receive high returns owing to the risk they're willing to take. Foreign Portfolio Investment is a prominent investment alternative nowadays. From individuals and businesses to even Governments invest in Foreign Portfolios.

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