Foreign investors are flocking to the Indian capital markets in a big way with a net inflow of over $30 billion of so-called ‘hot money’ in 2017, with equities alone getting over $8 billion - an amount bigger than the cumulative investment of the previous two years. The Indian stock market seems to have regained its status as one of the most favoured destinations for foreign portfolio investors (FPIs), as they have taken their net investment position in equities so far in 2017 to £5.50 billion - the highest in three years after £2.05 billion in 2016 and £1.78 billion in 2015.
But this remains a far cry from the heady levels seen earlier -£9.70 billion in 2014, £11.3 billion in 2013 and £12.8 billion in 2012. However, a sharper turnaround was seen in 2017 in terms of FPI inflows into debt markets where the net investments soared to a staggering £15 billion ($23 billion) after a net outflow of about £4.36 billion in 2016.
Although marketmen believe that this kind of FPI flows may not continue in 2018 as the withdrawal of liquidity and rate hikes in developed economies pick up. Also, the inflation cycle is likely to turn following increase in commodity prices and recovery in consumption demand. 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. In terms of sectors, banking, housing finance and auto have seen consistent FPI inflows.
