FPI inflows at $23 billion in H1-2017

New Delhi: Foreign investors have pumped in nearly USD 23 billion into the Indian capital markets in January-June 2017 on several factors, including expectations of accelerated pace of reforms.

In comparison, FPIs had invested about USD 1.2 billion (Rs 7,600 crore) in the first half of 2016.

"The most prominent reason for FPIs' net inflow is expectation from the government that it would speed up development and economic reforms in their last two years in office before going for elections in 2019.

"Goods and Services Tax (GST) and forecast of normal monsoon also led to positive sentiment," said Himanshu Srivastava, Senior Analyst Manager Research at Morningstar India.

FPIs invested a net Rs 53,354 crore (USD 8.2 billion) in equities during January-June 2017, while they poured Rs 94,199 crore (USD 14.5 billion) in the debt markets during the period under review, translating into a net inflow of Rs 147,553 crore (USD 22.66 billion), as per latest depository data.

The higher inflows in debt could be attributed to differential spread between 10-year bond yields in the US and India and stable Indian currency, said Hemang Jani, Head- Advisory, Sharekhan.

FPIs had started the year on a negative note and pulled out Rs 3,495 crore from the capital markets in January on concerned about "lower prospects" of economic growth compared to other emerging markets. Impact of change in policies by US President Donald Trump and demonetisation back home were the other contributing factors.

They had, however, reversed the outflow trend in February and the infusion continued till June, enthused by clarity on FPI taxation, GST roll-out and expectations of a good monsoon.

In fact in March, foreign investors poured in a record Rs 57,000 crore on expectations that BJP's victory in assembly polls will be a precursor to more "bold, reformist policies".

The BJP had formed governments in four of the five states that went to polls. It had formed governments in Uttar Pradesh, Uttarakhand, Manipur and Goa while in Punjab, the Congress came to power.

Going forward, there are a few challenges but they are not strong enough to disrupt the current trend. Markets and the rupee are surging higher, which offer a good profit booking opportunity for FPIs.

"The flow is largely driven by expectation, and for the flows to sustain, the government has to meet those expectations," Srivastava added.