FPIs' investment value in Indian equities drops 11% to $584 billion

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The value of foreign portfolio investors' (FPI) holdings in the domestic equities reached USD 584 billion at the end of December 2022, which was 11 per cent lower from preceding year, according to a Morningstar report.

This was largely on low return given by the Indian equities and exodus of foreign money from the domestic stock market.

Going by the report, the value of FPIs investments in Indian equities dropped to USD 584 billion as of December 2022 as compared to USD 654 billion at the end of December 2021.

On a quarter-on-quarter basis, the value of FPIs investment grew 3 per cent from USD 566 billion in the three months ended September 2022. This was also the second consecutive quarter, when the value of their investment in the domestic stock market had increased.

Consequently, FPIs' contribution to Indian equity market capitalisation also went up during the quarter to 17.12 per cent from 16.97 per cent in the September 2022 quarter.

After posting a robust growth in 2020 and 2021, the global equity markets went through a turbulent phase in 2022. In fact, 2022 was a difficult year as the world witnessed multiple challenges that weighed on the international markets.

Though the Indian equity markets also felt the heat and witnessed a slowdown, they were still among the better-performing markets in the world and among very few which delivered positive returns. Through the year, S&P BSE Sensex Index returned 4.44 per cent, whereas its mid-cap counterpart S&P BSE Midcap Index ended the year with a 1.38 per cent gain. In contrast, the small-cap segment went through a downturn with the S&P BSE Small Cap Index clocking a negative 1.8 per cent return.

The year 2022 experienced an unprecedented exodus of foreign money from the Indian equity markets with a net withdrawal of USD 16.5 billion (around Rs 1.21 lakh crore).

This was the worst year for FPIs in terms of flow and withdrawal from equities following a net investment in the preceding three years.

It was a year of challenges, and that was reflected in the muted investor sentiments as they preferred to stay away from riskier assets like emerging markets equities.

"The rolling back of pandemic-era monetary stimulus packages, stubbornly high inflation, consistent and aggressive hikes in interest rates by major central banks globally to control raging inflation, and an escalating geopolitical scenario related to the intense war between Ukraine and Russia were the prominent factors that led to massive outflow of FPI money from the Indian equity markets," the report noted.

So far in 2023 (till February 10), FPIs are net sellers of around USD 4.7 billion in Indian equities. The higher valuation of Indian equity markets led foreign investors to shift their focus toward markets which are appealing from a value standpoint. More recently, the Adani Group company issue also adversely damped investor sentiments, the report added.