FIIs pump in record Rs 2.6 lakh crore in FY21

The financial year 2020-2021 has been the year of Foreign Institutional Investors (FIIs) as India received net inflow of Rs 2,60,000 crore through these investors as per data available with National Securities Depository Limited (NSDL). This is the second highest year of inflows looking at data from 1992-93 till 2020-21.

Previously, the highest inflow was seen in the year 2014-15, the year the Narendra Modi government got elected at the centre. In 2014-15, India saw FII inflows of over Rs 2,77,000 crore. In fact, this sharp increase in FIIs is after two consecutive years of negative growth in FIIs and FPIs investment. There was an outflow of Rs 27,582 crore in 2019-20 and Rs 38,930 crore in 2018-19.

Analysts say that this inflow has been majorly due to macro-economic indicators being strong and also high corporate earnings. “Ample global liquidity, the increase in the weight of India in the emerging market MSCI index, improving domestic data and healthy earnings in many sectors, have supported the FII inflows into the equity segment in FY2021,” says Aditi Nayar, principal economist at ICRA.

The MSCI had increased India's weightage in the emerging markets segment in November 2020. A number of Indian stocks like ICICI Lombard, HDFC Life got an upgrade recently with their weightage in the index being increased.

Liquidity increase is largely because of central banks such as the US Federal Reserve printing more currency notes.

One of the macroeconomic indicators analysts are looking at is the GDP which stood at 0.4% for the third quarter of financial year 2020-21. This number indicates that India is technically out of recession.

Experts feel that after few years of low economic activity due to policy measures, the economy had started picking up in 2020 which has resulted in positive returns. “In the last few years, policy measures like GST and demonetisation slowed down the economy. Now since all that has been streamlined and economic activity has begun and GST collections are pretty good. These factors are helping us grow leading to inflows in equity,” says Akhil Chaturvedi from Motilal Oswal.

The government had stated that revenue collection through GST in December 2020 was Rs 1,15,000 crore versus Rs 8,300 crore the year before that, marking an increase of over 90%.

A look into the bifurcation of the inflow of these foreign funds tells us that inflow was in the equity segment. Debt saw a de-growth just like in the past few years. Analysts feel that FPI interest is likely to be less in Indian debt.

“With the GoI unveiling higher-than-expected deficits and borrowings for FY2021 and FY2022, and elevated crude oil prices, sentiment towards sovereign debt as well as yields has turned volatile,” says Nayar. “We expect that the Monetary Policy Committee’s rate cut cycle has ended, unless a cut in indirect taxes on fuels results in a sharp softening of the inflation trajectory.”

“In our view, FPI interest in Indian debt is likely to be limited in the near term.”

There was an outflow of Rs 51,221 crore in FY21.