Foreign Portfolio Investors Lead Robust Capital Inflows in Indian Markets for June-July 2024

Foreign Portfolio Investors (FPIs) turned net buyers in Indian financial markets during June and July 2024, injecting $10.8 billion, as per the Ministry of Finance's report. The equity component saw a net inflow of $7.1 billion. Strong capital inflows bolstered India's foreign exchange reserves to a record $675 billion.

Following net outflows in the initial two months of Financial Year (FY) 25, Foreign Portfolio Investors (FPIs) emerged as net buyers in the Indian financial markets, posting net inflows of USD 10.8 billion in June and July 2024, per the monthly economic review by the Department of Economic Affairs under the Ministry of Finance. The Thursday-released report also noted a reversal in the equity component, with a net FPI equity of USD 7.1 billion.

Data from NSDL reveals that from April to July 2024, the capital goods, telecommunications, and consumer services sectors attracted the highest FPI equity inflows. The report highlighted that the debt segment continues to attract substantial FPI inflows, with projections estimating around USD 20-40 billion influx within 18-21 months following the inclusion of Indian Government Bonds in JP Morgan's Emerging Markets global bond index as of June 28, 2024.

India's participation in other global indices has positively impacted the outlook for debt investments by Foreign Portfolio Investors, according to the report. 'There's a positive outlook for investments from FPIs in debt due to India's inclusion in other global indices,' the economic review emphasized.

The report also illustrated a significant upturn in Foreign Direct Investment (FDI) flows during FY25, with net FDI inflows rising by 42.7% in Q1 of FY25, driven primarily by increased gross FDI inflows. Gross FDI saw a rise from USD 17.8 billion in April-June 2024 to USD 22.5 billion in the first quarter of FY25.

Additionally, India's external commercial borrowings saw a dip to USD 1.8 billion during April-June FY25, compared to an inflow of USD 5.7 billion a year earlier. Non-resident deposits recorded higher net inflows of USD 2.7 billion during April-May FY25, up from USD 0.6 billion the previous year.

Supported by strong capital inflows, India's foreign exchange reserves soared to a historical high of USD 675 billion as of August 2, 2024, providing coverage for 11.6 months of imports and 101.7% of external debt as of March 2024. The report asserted that India's external sector is expected to stay resilient, reflected by robust performance in key external sector stability indicators.

(With inputs from agencies.)