💸 Rs. 9,000 Crore FPI Inflows: What Drew Investors to India?
After a year of withdrawing~ Rs. 39,000 Crore from Indian equities, FPIs have now made a U-turn by investing Rs. 9,000 Crore in just Nov 2023! Why? Read on.
That’s the amount Foreign Portfolio Investors (FPIs) have invested in the Indian equities market in November, 2023.
After a year of pulling out ~ Rs. 39,000 Crore from Indian equities, FPIs have made a 180-degree turn.
They have become net buyers.
What’s more?
FPIs didn't just stop at equities.
They invested Rs. 14,860 Crore in the debt market in November, 2023.
That's a 6-year high!
Why this sudden change of path?
Read on.
Why the Sudden U-Turn?
The world’s a global village.
Major economies in the world are interconnected.
Since the dollar backs most currencies in the world, anything the US does impacts us all the way across the ocean.
Back in 2021, while countries were dealing with Covid, the US was dealing with an evil as deadly as the virus: inflation.
How did it get there?
You see, when Covid hit, the interest rates in the US were low.
Low interest rates meant easy access to money.
Easy access to money increased the amount of money in the market.
But this extra money was chasing the same number of goods and services. So, things got more expensive.
Result: Inflation.
Now, in the difficult times of Covid, the Central Bank could not just raise interest rates like that. The economy would have died.
But after months of living with this evil, the Central Bank took a bold step.
It started raising interest rates.
And boy, it hasn't stopped since then!
It raised interest rates from a mere 0.25% in March 2022 to 5.50% in November 2023.
Result?
Inflation dropped from a steep 8.5% in March 2022 to a manageable 3.2% in October 2023.
Now, investors are predicting that there will be no more interest rate hikes (there may, in fact, be interest rate cuts to boost the economy).
And this is bad news for investors in the US.
Why, you ask?
Well, high interest rates meant higher yields on the US treasury bonds (government bonds).
So, investors were pulling out of the Indian markets and rushing towards US treasury bonds.
Now, with lower interest rates, the yields from US treasury bonds will be lower.
Enter India: the new darling for investors.
Investors rushed to pull out of the US markets and pump their money in emerging markets like India.
So much so that Nifty50 reached an all time high in five months on November 30, 2023!
India's Winning Streak
Plus, India's impressive GDP growth of 7.6% in the Q2 FY24 (July - September) was a sone pe suhaaga.
As if this wasn't enough, November saw 10 mainboard IPO listings, 8 of which were listed with premiums.
Looks like investors couldn't hold their excitement as the Tata Group went public after 20 long years (since TCS)!
India also saw a large decline in crude oil prices. Brent and WTI crude prices fell to $77 and $72 per barrel respectively.
So what?
Lower oil prices reduced the country's import bill, eased inflationary pressures, and improved overall fiscal health.
Investors are loving it, and FPI inflows is proof.
Diwali did bring wealth and prosperity for the country, indeed.
Peeking into the Future: What Do the Trends Suggest?
Predicting FPI flows can be as tricky as forecasting the weather.
But here’s what we know: it's going to depend on global economic conditions, the US interest rate decisions, India’s economic trajectory, and the policy moves from the Indian government.
Wrapping It Up: The Big Picture
In essence, the recent swing in FPI behavior is a fascinating insight into how global and local economic policies interplay.
The world of finance is not just about numbers.
It's a pulsating, ever-evolving story where each policy change, each rate hike, and each investment decision is a part of a larger world narrative.
And we're here to decode this seemingly complex world of finance for you :)
Till then, read on.
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