Foreign Portfolio Investments (FPIs) into India reached new heights in September 2024, with inflows soaring to over $6.8 billion. This marked a peak not seen in the previous nine months, significantly contributing to a cumulative FPI inflow surpassing $12 billion for the year 2024. This strong surge underscores the growing confidence of foreign investors in India’s economic resilience and market potential, making the country a key destination for global capital.
Key Drivers Behind the Surge
- Global Monetary Policy Shifts
A major catalyst for this spike in FPIs was the U.S. Federal Reserve’s decision to cut interest rates by 50 basis points in mid-September. This rate cut expanded global liquidity and made emerging markets like India more attractive for investors seeking higher returns. As U.S. bond yields fell, India’s relatively higher-yielding assets, particularly in equities and government bonds, drew substantial foreign capital. - India’s Strong Economic Fundamentals
India’s robust economic outlook has played a significant role in attracting FPIs. Despite global economic uncertainties, India has shown strong corporate earnings, improved GDP growth prospects, and a booming capital market. A series of high-profile Initial Public Offerings (IPOs) further fueled foreign investor interest. These large IPOs, priced attractively, created new opportunities for investment, further bolstering market sentiment. - Favorable Currency Movements and Market Performance
With the depreciation of the U.S. dollar and the relatively stable performance of the Indian rupee, foreign investors were encouraged to channel funds into India. This favorable currency differential amplified returns on Indian assets. Additionally, global index providers increased India’s weight in their indices, prompting foreign funds to allocate larger portions of their portfolios to Indian equities. In tandem, India’s equity markets performed well during the quarter, enhancing investor optimism. - Attractive Debt Markets
Beyond equities, FPIs also poured significant amounts into India’s debt markets, with over $2.6 billion being invested through the Fully Accessible Route (FAR) for government securities. The Reserve Bank of India (RBI)’s supportive policies ensured stable yields in the debt market, making Indian bonds an attractive avenue for foreign investors seeking both returns and liquidity. The infusion of foreign capital into debt is expected to remain strong, especially as India continues to offer favorable interest rates compared to developed markets.
Month-on-Month Momentum
FPI inflows have seen consistent positive momentum since June 2024, following brief withdrawals earlier in the year, particularly in April and May, when foreign investors pulled out approximately $4 billion due to global economic uncertainties. However, as central banks globally began signaling interest rate cuts and a more accommodative monetary stance, FPIs reversed their course and returned to Indian markets in significant volumes. By September 2024, FPIs had become net buyers in Indian markets, injecting over $6.8 billion in a single month, signaling an extraordinary rebound.
Future Outlook
Experts anticipate that FPIs will continue to flow into Indian markets in the coming months. The economic and policy environment remains conducive, with the RBI’s focus on maintaining liquidity, managing inflation, and fostering growth. Moreover, as India positions itself as a key player in the global economic landscape, foreign investments are expected to sustain their momentum. However, challenges such as global economic volatility, geopolitical risks, and domestic policy shifts could influence the pace of inflows.
In the near term, India’s ability to balance inflationary pressures, maintain fiscal discipline, and promote investor-friendly policies will be crucial in sustaining the interest of foreign portfolio investors. Nevertheless, with India’s strong economic fundamentals and strategic positioning in the global market, FPIs are likely to remain an integral part of its growth trajectory in 2024 and beyond.
Conclusion
September 2024 marked a pivotal month for India’s capital markets, with foreign portfolio investments hitting a 9-month high. The combined impact of favorable global liquidity conditions, India’s strong economic fundamentals, and attractive investment opportunities fueled this surge. As global investors continue to seek out higher-growth markets, India stands as a prime destination, reinforcing its status as an emerging market powerhouse.
