The value of Foreign Portfolio Investment (FPI) holdings in Indian equities dropped by 11% and reached $584 billion at the end of December 2022, according to the Morningstar report.
The holdings were largely on low returns given by the Indian equities and the exodus of foreign money from the domestic stock market. The value of the investment at the end of December 2021 was $654 billion.
If we talk about a quarter-on-quarter basis, the value of the FPI’s investment grew by 3% from $566 in three months ended in September 2022. This was the second consecutive quarter when the investment value increased in the domestic stock.
FPI’s contribution to Indian equity market capitalisation also went up during the quarter to 17.12% from 16.97% in the September 2022 quarter.
After robust growth in two consecutive years, 2020 and 2021, the global equity market went through a storm in 2022. In other words, 2020 was a difficult year for the Indian equity market as the world witnessed multiple challenges that weighed on the international markets.
However, the Indian equity market is still better performing globally and among very few, which delivers positive returns.
According to the experts, an unprecedented exodus of foreign money from the Indian equity markets, with a net withdrawal of $16.5 billion in the year 2022, is the reason behind the drop. This was the worst year for FPIs regarding flow and withdrawal from equities following a net investment in the preceding three years. These challenging years reflected in the muted investors’ sentiments as they preferred to avoid riskier assets like emerging markets equities.
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So far in 2023 (till February mid), FPIs are net sellers of approximately $4.7 billion in Indian equities. There are two reasons behind it; one is the shifted focus of foreign investors towards an appealing market from a value standpoint, and the second is Adani Group adversely damped investors’ sentiments.