NEW DELHI: India reported a massive decline in Foreign Portfolio Investment (FPI) inflows during 2024, registering a 99 per cent decline compared to the preceding year, according to the National Securities Depository Limited (NSDL).
The NSDL data indicated that net FPI inflows reduced from Rs 1.71 lakh crore in 2023 to Rs 2,026 crores in 2024.
Financial analysts attribute this decline primarily to the US economy’s strong position in global markets. The robust US economic performance, combined with steady stock markets and sustained high interest rates, resulted in considerable investments flowing into US bonds, money markets, and equities, affecting emerging markets including India.
Furthermore, Indian markets became less attractive due to increased valuations, high market cap-to-GDP ratio, declining GDP growth, reduced industrial production, and diminished corporate earnings growth.
“Many factors are behind the FPI flows tempering in 2024 in India. The first was US exceptionalism. The strong US economy, US stock markets and “higher for longer” US interest rates meant that strong flows went into US money markets, US bonds and US stock market, to the detriment of Emerging Markets including India,” said Ajay Bagga, banking and market expert.
Additionally, multiple elements including general elections, which resulted in reduced government expenditure and infrastructure development, that led to subdued economic activities hindered FPI inflows domestically.
Meanwhile, stimulus in China triggered a brief influx of $53 billion into Chinese equities between September 24 and October 8. This development resulted in capital shifting away from Indian markets during this timeframe.
“Another factor was the underperformance of the Indian banks and non-bank lenders as the RBI tightened unsecured lending rules and liquidity tightened” added Bagga.
The poor performance of Indian banking and non-banking financial sectors was particularly significant. The RBI’s stricter controls on unsecured lending and constrained liquidity affected these sectors, which constitute a substantial portion of Indian markets. FPIs, who typically favour financial stocks, sold shares worth $35 billion in this sector throughout the year.
However, FPIs showed continued interest in India’s primary markets, suggesting faith in specific long-term growth prospects. Additionally, the increasing presence of domestic investors provided market stability, allowing FPIs to withdraw without significant market disruption.
