FPI Inflows Surge To All-Time High Of Rs 1.71 Lakh Crore In 2023

India received the highest-ever foreign portfolio inflows in 2023 and surpassed emerging market peers amid global volatility and valuation concerns.

Foreign investors net-bought Indian equities worth Rs 1.71 lakh crore as of Dec. 29, according to National Securities Depository Ltd. That's more than the previous record of 1.70 lakh crore. December recorded an all-time high for a single month at Rs 66,135 crore.

Foreign inflows defied global volatility, geopolitical tensions and concerns about froth in the market as India's broader indices outpaced Nifty and Sensex. The Nifty 50 gained over 19% and the Sensex rose 18% this year, recording an eight-year winning streak.

The pace of FPI inflows spiked after the state election results strengthened the position of the BJP in the Hindi belt states and the US Federal Reserve signalled a pivot to rate cuts.

The domestic economy was resilient all across this time frame, with a revival in the private capex cycle, robust infrastructure spending by the government, record GST collection and, most importantly, margin expansion-led healthy, high double-digit corporate earnings growth, according to an ICICI Direct Research note.

Of the Rs 1.71 lakh crore invested by foreign portfolio investors so far in 2023, Rs 46,323.81 crore or about 27.07%, has come via initial public offerings.

India also remained the largest recipient of FPI flows this year among emerging markets. The FPIs were sellers in Thailand, the Philippines, Indonesia, Malaysia, and Vietnam.

The net investments by foreign portfolio investors were led by the financial services and capital goods sectors, followed by the automobile and auto components sectors, according to data from National Securities Depository Ltd. Oil and gas and information and technology saw the highest outflows.

Foreign portfolio investment in the domestic debt market hit a six-year high, driven by robust yields and the domestic bonds' inclusion in JPMorgan's Emerging Market Global Bond Index.

Foreign portfolio investors have infused Rs 68,663 crore this year, as of Dec. 29, according to data from the National Securities Depository Ltd. The previous highest monthly inflow by FPIs was recorded in 2017.

"Healthy corporate earnings are expected to continue and a politically stable environment will prevail in India; therefore, FPI money may continue to pour into India in the next year as well," according to Kunal Sodhani, vice president of Shinhan Bank. "Reduced portfolio allocation to China may continue to assist India."

Considering that it is an election year, the infrastructure, real estate, and banking and financial services sectors may perform well during the first half of 2024. Sodhani said.

"We continue to expect a clean sweep by the BJP and thus political stability and a bounce in FDI flows may be expected," he said. "But before that, the February 2024 budget will be important to watch out."