Throwback 2024: How FPI flows and ownership changed in the year gone by

FPIs sold Indian equities in five out of the 12 months.

Despite foreign investments in Indian equities witnessing a volatile journey throughout 2024, foreign portfolio investors (FPIs) are set to close the year with net buying of Indian equities worth Rs 1,656 crore ($268 million), according to data from NSDL.

While the net inflows look paltry considering the fact that FPIs were net buyers at Rs 1.71 lakh crore in CY23, it would still qualify as a remarkable feat given the relentless selling in five out of the 12 months.

September saw the highest FPI inflows coming at Rs 57,724 crore, followed by strong inflows in July, June, and March, which helped lift the markets to new record highs before profit-booking took some of the steam out of the bull run.

However, October marked a sharp contrast with significant FPI selling, resulting in outflows exceeding Rs 94,000 crore. Outflows were particularly heavy in January, May, April, and November -- FPIs were net sellers at over Rs 21,000 crore in the penultimate month of the year.

How FPI ownership changed in 2024?

The ownership pattern in the Indian stock market saw significant changes given the volatile FPI flows and strong domestic inflows. Total FPI ownership of Indian equities slipped from 16.58 percent at the end of March to 15.98 percent by October end. However, that was before it witnessed a slight recovery to 16.10 percent as of November end.

On the contrary, DII ownership of Indian equities charted a consistent path, going from 15.98 percent at the end of 2023 to 16.20 percent by September end. In addition to that, the constant flow of domestic money into the market also helped safeguard Indian equities from a much lethal blow in the October-December FPI selling spree. In the words of analysts at CLSA, "domestic appetite for Indian equities remains strong, offsetting foreign jitters, and valuation, though pricey, is now a little more palatable."

Factors behind moderated inflows

While confidence in India's long-term growth prospects kept FPIs hooked on to domestic equities, a slew of negative triggers slowed down the momentum of money from pouring into the markets. Lofty valuations, faltering earnings growth, slowdown in public spending, a populist coalition government and China's revival stimulus were factors that pushed FPIs to the edge.

As a result, FPIs dumped Indian shares worth Rs 1.15 lakh crore through October and November, pushing the benchmark Nifty 50 into a correction territory, meaning 10 percent off its record high.

The Road Ahead

On the global front, waning optimism over China's stimulus-driven recovery, compounded by Donald Trump’s victory in the US presidential race, has shifted the spotlight back to India.
Analysts expect Trump’s second term to be particularly challenging for China, given his proposed heavy tariffs on the world’s second-largest economy. In contrast, CLSA highlights India as one of the least exposed regional markets to adverse US trade policies, presenting an attractive alternative for FPIs.

CLSA also notes the substantial net foreign investor selling India witnessed in October, which, based on investor feedback, reflects a deliberate strategy of waiting for a favourable buying window to address Indian underexposure.

Nomura shares this optimistic outlook, predicting a gradual FPI comeback driven by India's structural growth story. The firm also touted the current underperformance as 'transitory,' stating that India’s cyclical slowdown does not diminish its long-term investment appeal.

Nomura also highlights the robust 'China+1' narrative, underweight positions in Indian equities among emerging market (EM) funds, and the benefits of a K-shaped economic recovery as key factors that will aid the market rebound.

Furthermore, Nomura believes that India’s equity indices, among the most diversified in Asia, offer a balanced mix of domestic growth and export-oriented sectors. This diversification, according to Nomura, adds resilience against domestic challenges and reduces the risks associated with market concentration, making Indian equities a compelling bet for FPIs.

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