FPIs pump ₹1.65 lakh cr in Indian markets, equity inflows plunge 99% to ₹427 cr in 2024: What lies ahead in 2025? | Stock Market News

India experienced a drastic drop in Foreign Portfolio Investment (FPI) inflows in 2024, with net investments falling by 99 per cent compared to the previous year, according to data from the National Securities Depository Limited (NSDL).

The data highlighted that the net FPI inflows came down from ₹1.71 lakh crore in 2023 to just ₹2,026 crores in 2024. The NSDL data highlights significant challenges for India to attract foreign investment.

As per the stock market experts, one of the primary reasons for this decline was the dominance of the US economy in the global markets. The strong performance of the US economy, coupled with resilient stock markets and prolonged higher interest rates, directed substantial investment towards US bonds, money markets, and equities. This shift occurred at the expense of emerging markets like India.

Additionally, Indian markets lost some appeal because of higher valuations, elevated market cap-to-GDP ratio, slowing GDP growth, weaker industrial output, and reduced corporate earnings growth.

Ajay Bagga Banking and Market expert told ANI “Many factors are behind the FPI flows tempering in 2024 in India. The first was US exceptionalism. The strong US economy, US stock markets and “higher for longer” US interest rates meant that strong flows went into US money markets, US bonds and US stock market, to the detriment of Emerging Markets including India”.

Domestically, several factors further deterred FPI inflows. The general elections in 2024 led to a slowdown in government spending and public infrastructure projects, dampening economic activity.

Meanwhile, the long-awaited stimulus in China caused a temporary inflow of USD 53 billion into Chinese stocks between September 24 and October 8. However, this development drew capital away from Indian equities during the same period.

“Another factor was the underperformance of the Indian banks and non-bank lenders as the RBI tightened unsecured lending rules and liquidity tightened” added Bagga.

The underperformance of Indian banks and non-bank financial institutions also played a significant role in this trend. The Reserve Bank of India’s tighter regulations on unsecured lending and reduced liquidity impacted these sectors, which hold a considerable weight in the Indian markets. FPIs, traditionally overweight on financial stocks, net sold USD 35 billion worth of shares in the sector during the year.

The experts also noted that the global factors, such as the Bank of Japan’s monetary policy changes, further exacerbated the situation. Adjustments to interest rates impacted the “yen carry trade,” leading to outflows across emerging markets, including India.

Despite the challenges, FPIs maintained some interest in India’s primary markets, indicating confidence in select long-term growth opportunities. Moreover, the rise of domestic investors provided a buffer for the markets, enabling FPIs to exit with minimal disruptions.

The sharp decline in FPI inflows underscores the need for India to address both global and domestic challenges to sustain foreign investment and bolster economic growth in the coming years.

Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

“The selling spree by FIIs seen in October and November has declined in December. There has been occasional buying by FIIs in early December but they turned sellers again, though not on a sustained basis like in October and November. For December, through 27th FIIs have sold equity for ₹656 crores only through the exchanges.An important characteristic about FII investment is that they have been consistent investors of equity through the primary market. In December through 27th FIIs invested ₹17331 crores through the primary market.

This trend of selling through the exchanges and buying through the primary market is discernible in the year-long trend in 2024. For 2024 till 27th December, FIIs sold equity for ₹119277 crores through the exchanges. In contrast to this selling trend they invested ₹120932 crores through the primary market. This means FIIs are net investors in India so far this year. The selling through exchanges is mainly due to the high valuations and investing through the primary market is mainly due to the fair valuations.

In the debt market FIIs have invested ₹112409 crores so far this year.(All data from NSDL)

In early 2025 FIIs may again turn sellers into equity since the dollar has been appreciating (dollar index is above 108) and the US 10-year bond yields are attractive at around 4.4%. FIIs will turn buyers in India when there are indications of growth and earnings recovery.”