In a testament to India’s economic resilience and stability, foreign portfolio investors (FPIs) have injected an impressive $20 billion into Indian equities by December 20, making it the second-highest inflow in the last decade. This follows the exceptional performance in 2020 when FPIs invested $23 billion in the Indian markets.
Remarkably, among Asian economies, only Japan surpasses India, attracting $30 billion, with South Korea securing the third position with close to $9 billion in inflows.
Andrew Holland, CEO of Avendus Capital Alternate Strategies, highlighted the significance of the US Federal Reserve’s signaling of rate cuts, pointing out that investors are now turning towards India for the next phase of growth. He emphasized India’s domestic market-driven economy and a compelling consumption story, with the population ascending the value chain.
India’s status as a safe haven for investments in 2023 is further bolstered by the challenges faced by other Asian economies. Economic crises in Sri Lanka, tensions between Taiwan and China, and electoral events in countries like Thailand have diverted attention towards the stability offered by the Indian market.
Recent Assembly election results in the Hindi heartland have laid to rest concerns over political stability, a factor that typically makes FPIs cautious in the run-up to elections. The confidence in a clear majority for the ruling party has marked this year as an exception, according to market players.
Experts also warned that global factors remain crucial for FPIs. Potential geopolitical tensions such as the Middle East and Russia-Ukraine conflicts, along with fluctuations in crude prices, could impact FPI decisions.
FPIs typically view emerging markets as a basket, and any escalation in global issues could lead to a cautious stance. Additionally, FPIs might consider repatriating some funds, potentially resulting in near-term outflows.
As the year approaches its end, analysts anticipate a temporary lull in the last few days of 2023 due to the holiday season. Concerns over the new Covid variant and geopolitical tensions could, however, spook foreign investors, adding an element of uncertainty.
It’s worth noting that FPIs withdrew approximately $4.8 billion in September and October amid record-high US bond yields. The tide turned in November as yields cooled off, and the Fed’s dovish stance has instilled confidence in markets anticipating rate cuts.
In a notable shift towards growth, the Fed’s indication of three rate cuts in 2024 totaling 75 basis points has influenced market sentiment. The dollar index, measuring the dollar against major global currencies, has declined from 102.87 to 102.21 over the past week.
