FPI Equity Inflows Plummet 99 Per Cent In 2024 From Rs 1.71 Lakh Crore Amid Valuation Concerns And Weak GDP Growth

The year 2024 marked a significant deceleration in foreign portfolio investor (FPI) activity in India, with net inflows into domestic equities plunging to a mere Rs 1,656 crore, a staggering 99 per cent drop compared to the robust Rs 1.71 lakh crore inflows recorded in 2023.

This sharp decline is attributed to multiple factors, including concerns over Indian stock valuations, below-expected GDP growth in the second Quarter (Q2) of Financial Year (FY) 2025, weak corporate earnings, and the impact of higher US bond yields.

Equity Market Struggles

According to NSDL data, foreign investors primarily sold in the secondary stock market while focusing their buying activity in the primary market. The steep decline in equity inflows reflects a cautious approach by global investors amidst unfavorable economic indicators.

Debt Market Outperforms

In contrast, FPIs displayed robust interest in India's debt market, with net inflows surging to Rs 1.12 lakh crore in 2024, up from Rs 68,663 crore in 2023. The Debt Voluntary Retention Route (VRR) attracted Rs 13,782 crore, while the Fully Accessible Route (FAR) secured Rs 28,795 crore.

Global Trends

"The larger picture in 2024 from a global investor’s point of view was that the US market was doing well and the US dollar remained strong. Post Donald Trump’s election, the view was that the dollar would remain a stronger currency and the US market would be a good investment destination," remarked Nitin Jain, CEO of Kotak Mahindra Asset Management, Singapore.

"When the largest market appears favorable, every other asset class has to offer something better. That was a big challenge for other (emerging) markets (including India) in 2024," he added.

Optimism for 2025

Analysts anticipate a rebound in FPI inflows into India in 2025, fueled by expectations of a recovery in GDP growth, a rise in government spending, improving corporate earnings, and easing inflation. Additionally, an RBI rate cut is widely expected, which could further attract global investors.

"Everyone knows that India will be the best-performing market for the next 3, 5, 10 years. Therefore, FPIs cannot sell consistently. They will turn buyers in India when there are indications of growth and earnings recovery," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Growth Drivers in Focus

A recent RBI article projected an uplift in India’s growth trajectory during the second half of FY2024-25, driven by resilient private consumption and sustained government infrastructure spending, which are expected to stimulate further economic activity.

As India enters 2025, the interplay of domestic policy support, a stabilizing global economy, and revived investor sentiment could set the stage for a renewed influx of foreign portfolio investments into the country.

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