How did foreign investment in Indian stock market decrease by 99% since last year?
#News Bureau December 31,2024
What happened in India’s domestic stock market that foreign investors got disillusioned? In 2024, only Rs 1600 crore came through FPI i.e. foreign portfolio investment. Last year it was 1.71 lakh crore. That is, there was a decline of 99 percent. What happened to foreign portfolio investors suddenly that they were not ready to invest money in the domestic stock market in 2024?
Before knowing these reasons, let us know what data has come regarding the investment of foreign portfolio investors i.e. FPI. According to National Securities Depository Limited i.e. NSDL, till 27 December 2024, FPIs made a net investment of Rs 1656 crore in Indian equities. Although foreign investors were major sellers in the stock market, they remained buyers in the primary market.
Foreign portfolio investors did not invest in equities, but on the contrary, they increased investment in the domestic debt market, which led to net purchases reaching Rs 1.12 lakh crore in 2024, from Rs 68,663 crore in 2023.
So the question is, what is the problem of foreign portfolio investors with the domestic stock market? Many reasons are being given behind this. Stock market experts say that concerns about the valuation of shares in the Indian stock market include lower than expected GDP growth in the second quarter of FY 2025, weak corporate earnings and rise in US bond yields.
It is being said that the biggest concern about the Indian stock market among foreign portfolio investors is the valuation of shares. It is being said that Indian stocks are trading at prices much higher than their real value. The stock market has fallen significantly recently. Sensex and Nifty have fallen by about 11 percent from their peak. Despite the recent correction, experts do not see any significant relief on the valuation front. Experts say that the recent correction has not brought any major change in the multiples of the broad market.
The second major cause of concern is the weak quarterly results. Earning growth of companies has become a big problem. So far, the September quarter results of most companies have been lower than expected.
JM Financial has said in a recent report that the results of 157 companies under its coverage have been lower than expected. According to a Money Control report, Jefferies has said that it has downgraded the stock rating of 63 percent of the companies under its coverage after the poor results.
Amidst such a situation of the stock market, foreign investors continue to withdraw money from the Indian stock market. In the months of October and November, there was a withdrawal of about Rs 1.25 lakh crore.
According to a report by The Indian Express, Nitin Jain, CEO of Kotak Mahindra Asset Management in Singapore, said, ‘From the global investor’s point of view, the big picture in 2024 was that the US market was performing well and the US dollar remained strong.
He said, “After the election of Donald Trump, the view was that the dollar would remain a strong currency and the US market would be a good investment destination. This was the biggest factor driving global flows. When the biggest market looks favorable, every other asset class has to offer something better. This was a big challenge for other (emerging) markets (including India) in 2024.” Jain said that the global narrative in 2024 revolved around the strength of the US market and the strength of the US dollar.
