FPIs: All is not well

For an investor, flow of foreign portfolio investments (FPIs) is a yardstick to gauge the buoyancy in the economy.

And, going by the dismal numbers of net investments by foreign investors in the financial year ended March 2019, there seems to be hardly any faith in the India growth story. In FY19, net FPI outflow stood at ₹38,391 crore, just ₹6,881 crore short of the highest ever net FPI outflow of ₹45,811 crore in FY09—the fiscal that witnessed the global financial meltdown of 2008.

If you compare the performance of the S&P BSE Sensex in both the years, FY19 looks a difficult year. In FY09, the 30-share Sensex touched its lowest of 7,697.39 on October 28, 2008. That was during the aftermath of the collapse of Lehman Brothers in the U.S. On the contrary, the benchmark in FY19 fell to its lowest of 32,972.56 on April 4 last year. The low in the latest fiscal is over 4.22 times more than the low in FY09. Within equity and debt, FY19 saw a mixed reaction from FPIs. The first six months saw FPI outflow from equities of ₹64,451.4 crore, while the last six months saw an inflow of ₹64,363.32 crore; at the end of the financial year, equity witnessed a net outflow of ₹88.03 crore; October 2018 had the highest outflow of ₹28,921.2 crore while March 2019 saw a net inflow of ₹33,980.6 crore.

Interestingly, the equity inflow in March 2019 is the highest of all the monthly inflows in the past 60 months since April 2014, and the same is the case of the with the October 2018 monthly outflow.

When seen through the lens of general elections, the foreign portfolio investments' number in the quarter preceding the 2019 elections seems to be depicting stronger investor confidence than in 2014. Between January and March 2014, foreign portfolio investors were net buyers of equity and debt worth ₹22,195.7 crore and ₹35,531.6 crore, respectively. In 2019, these numbers have an interesting twist to show. Equity inflow of ₹46,938.2 crore, between January and March 2019 is 111.5% higher compared to the corresponding period in 2014. On the other hand, net inflow in debt fell 86.9% in FY19 to ₹4663.6 crore, compared to ₹35,531.6 crore in the first three months of 2014.

At a time when there is tension over trade war at the global level and geopolitical tensions at the regional level, the macroeconomic challenges that India faces seem to be losing the bare eye. But the stock market and FPIs have seemingly accounted for the results of the upcoming elections, whichever party wins. What other investors should, however, keep in mind is that FPIs chase returns and they are rightly called hot money as they can flow out way faster than they flow in.