That the Covid-19 pandemic has had a major impact on foreign portfolio investment (FPI) flows in 2020 is a given. Earlier, in March this year, FPIs recorded a monthly net outflow of over ₹61,972 crore from equities, while debt net outflows were over ₹60,375 crore.

In terms of total flows, which includes investments in debt-VRR (voluntary retention route) and hybrid investments—primarily investments like real estate investment trust (REITs) and infrastructure investment trusts (InvITs)—March saw a record total outflow in excess of ₹1,18,203 crore.

At the end of September—six months after the Covid-19 pandemic propelled the worst monthly outflow—FPIs recorded net equity outflow of over ₹7,782 crore, while debt recorded net inflow of over ₹3,957 crore.

Interestingly, equities recorded a negative flow after four consecutive months of positive net flows—from May to August. On the other hand, debt saw positive net inflow after six consecutive months of negative flows—from March to August.

In aggregate terms, against March’s total outflow of over ₹1,18,203 crore—as much as ₹79,182 crore, or nearly 67% of inflows were recorded in three months: June (₹26,009 crore), July (₹3,301 crore), and August (₹49,879 crore).

The strong comeback in equities, seen since May 2020, reflected in net equity inflows, against net outflows of ₹68,856 crore in March (₹61,972 crore) and April (₹6,883 crore). The subsequent months’ net inflows added up to ₹91,042 crore: ₹15,568 crore in May, ₹21,831 crore in June, ₹7,562 crore in July, and ₹47,079 crore in August. This was a recovery of over 132% when compared to the outflows in March and April.

However, the current year (till September) has been lacklustre in terms of debt investments by FPIs. Of the nine months, seven saw net outflows adding up to over ₹1,14,841 crore, with February and September being the only months of positive net inflows of ₹2,096 crore and ₹3,957 crore, respectively.

Overall, if one were to compare the nine months ending September over the past five years, the period in 2020 was the worst for FPI flows into debt since 2016, with a net outflow of ₹1,08,786 crore. Before this year, the corresponding period in 2018 saw an outflow of ₹48,176 crore. In contrast, 2017 saw FPI inflows worth ₹1,29,862 crore into debt.

The story was similar for equities, despite rising net inflows since May. The nine months ended September saw net inflows of just ₹28,436 crore—the lowest positive inflow in five years, following net outflow of ₹13,216 crore in 2018.

On an aggregate basis, this year’s nine-month period recorded net outflow of ₹52,496 crore, which was the worst after 2018’s aggregate net outflow of ₹61,497 crore. If not for the positive inflows exceeding ₹27,944 crore seen in debt-VRR (₹17,511 crore) and hybrids (₹10,433 crore), net outflows in 2020 would have been the worst in five years.

The Covid-19 pandemic has left its mark on FPI flows. But with more uncertainty in the coming months—including the U.S. elections, as well as the Bihar Assembly polls—be prepared for volatility to continue in the markets as well as for FPI flows.

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