NEW DELHI: India reported a significant decline in foreign portfolio investment (FPI) inflows in 2024, registering a 99 per cent year-on-year decline, according to the National Securities Depository and Depository (NSDL).
According to NSDL data, net FPI inflows declined from Rs 1,710 crore in 2023 to Rs 2,026 crore in 2024.
Financial analysts attribute this weakness primarily to the strong position of the US economy in global markets. The strong economic performance of the United States, coupled with a stable stock market and persistently high interest rates, led to large investments flowing into U.S. bonds, money markets, and equities, impacting emerging markets, including India. .
Additionally, the Indian market has become less attractive due to higher valuations, higher market capitalization to GDP ratio, lower GDP growth, lower industrial production and lower corporate earnings growth.
“There are many factors behind the subdued FPI flows in India in 2024, the first being US exceptionalism. A strong US economy, US stock market and ‘long-term’ US interest rates. , which meant strong flows into US money markets, US bonds, and US interest rates. “The US stock market is having a negative impact on emerging markets, including India,” said Ajay Bagga, a banking and market expert.
Furthermore, multiple factors, including the general election, reduced government spending and infrastructure development and stagnated economic activity, which hindered FPI inflows into the country.
Meanwhile, China’s economic stimulus package triggered a one-off $53 billion inflow into Chinese stocks between September 24 and October 8. This development led to an outflow of capital from the Indian market during this period.
“Another factor was the weak performance of Indian banks and non-bank financial institutions as the RBI tightened unsecured lending regulations and liquidity became tighter,” Bagga added.
The underperformance of India’s banking and non-banking financial sectors was particularly pronounced. The RBI’s strict controls on unsecured lending and liquidity constraints have affected these sectors, which constitute a significant portion of the Indian market. FPIs, who typically favor financial stocks, sold $35 billion worth of stocks in the sector during the year.
However, FPIs continue to show interest in India’s key market, suggesting confidence in certain long-term growth prospects. Moreover, the increased presence of domestic investors has brought stability to the market, allowing FPIs to exit without causing major disruption to the market.
