FPI net inflows at Rs 49K cr in FY'17; debt takes back seat

Foreign investors pumped in a little over Rs 49,000 crore in the Indian capital markets in 2016-17 after pulling out a hefty sum in the preceding fiscal.

Equities attracted net inflows during the just concluded financial year. Debt instruments, on the other hand, took a big hit after remaining preferred investment avenue for foreign funds in recent years.

Foreign Portfolio Investors (FPIs) purchased stocks worth about Rs 56,123 crore in 2016-17, but sold bonds to the tune of Rs 7,029 crore, resulting in net inflows of Rs 49,095 crore, according to depositories data.

FPIs had started the year on a positive note and pumped in close to Rs 47,000 crore in equities in the first six months on hopes that the Reserve Bank would bring down the monetary policy rate at its first policy meet of 2016-17 as well as on expectations of a good monsoon.

The overall inflows last fiscal followed a net outflow of Rs 18,175 crore from the capital markets (equity and debt) in 2015-16. That included a withdrawal of Rs 14,171 crore from equities and Rs 4,004 crore from the debt markets.

The capital poured in by FPIs is often called 'hot money' because of its unpredictability, but these overseas entities have still been among the most important drivers of Indian stock markets.

FPIs' cumulative net investment in the Indian equity market, since being allowed over two decades ago in November 1992, has now reached Rs 8.65 lakh crore.

The cumulative figure for debt securities has also grown to about Rs 3 lakh crore -- taking the total for both debt and equities to Rs 11.65 lakh crore (USD 232 billion).

The equity market kept overseas institutional investors enthralled last fiscal with its relatively steadier return, according to experts.

They had, however, reversed the inflow trend in October and the withdrawal continued till January on uncertainty over the outcome of the US presidential elections, expectations of a rate hike by the US Federal Reserve and the government's demonetisation drive back home.

"Capital outflows started in Indian markets from October over the uncertainty of US election results. This event was soon followed by the demonetisation drive that created a domestic cash crunch and sparked intense selling pressure in the capital markets," Dinesh Rohira CEO at 5nance.Com said.

Thereafter, they had poured in a over Rs 41,000 crore in stocks in February and March.

In March alone, FPIs had infused a net sum of Rs 31,327 crore in equities buoyed by expectations that BJP's victory in assembly polls is a precursor to more "bold, reformist policies".

With regard to the debt market, FPIs had started the year on a positive note, but for most part of the year, they pulled out. From October onwards, overseas investors had been withdrawing money from the debt market and the trend continued till January.

However, they had infused money in February and March.