Will FIIs Come Back In A Bigger Way In Future? – News18
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What might have once supported the growth of the Indian equity market now appears to be working in reverse.
With domestic investors eagerly purchasing what FPIs are offloading, one wonders: Are Indian investors making a prudent decision?
Authored By G Pradeepkumar:
In recent years, Indian equity markets have seen a dramatic shift in investor behaviour, raising questions about the rationale behind it. Indian investors are stepping up to buy stocks aggressively sold by foreign portfolio investors (FPIs), potentially allowing them a smooth exit from the market. This is a far cry from the situation in the 1990s, when, according to a school of thought, FPIs were often forced to stay invested due to lack of buyers for their stocks. What might have once supported the growth of the Indian equity market now appears to be working in reverse. With domestic investors eagerly purchasing what FPIs are offloading, one wonders: Are Indian investors making a prudent decision, or are they being misled? And did FPIS stay invested earlier only because they could not find buyers for the stocks that they wanted to sell? Let’s examine the data to understand whether Indian investors are truly acting in their best interests?
For the ten-year period from 1992-93 till 2001-02, the cumulative net FPI investments in Indian equity was Rs 88,612 crore. This is the period during which apparently Indian market players managed to hoodwink the foreign investors and got them to stay invested even when FPIs realised that they could not get an exit from the market. During the next 10 years i.e. 2002-03 till 2011-12, the cumulative net FPI investment jumped to Rs 3,51,018 crore. Nearly 4 times! In other words, in spite of realising in the first 10 years of FPI activity in India that Indian market was a kind of Hotel California where you could only enter but could not exit, they were happy to pump in four times more money into Indian markets in the next 10 years.
Let’s now look at the next ten years from 2012-13 till 2021-22. The FPI investment figure goes up further to Rs 5,38,326 crore. 2021-22 was the year in which we saw the highest ever net FPI outflow of Rs 1,40,010 crore. Since then, we have seen cumulative net FPI inflow of Rs 63,009 crore including outflow of Rs 1,07,571 crore so far in 2024-25 (up to February 13, 2025).
There is has been huge influx of new retail equity investors in the markets in the last five years or so without them sufficiently understanding the risks involved. The valuations of many small cap companies were taken to stratospheric levels. But, the market is a great leveller and it will weed out the fools. Are we giving an easy exit to FPIs this year? Perhaps. But then, the FPIs gave us a great entry opportunity in 2021-22 and Indian investors made tons of money on that.
The Indian markets, especially the mutual fund industry, has created tremendous wealth for Indian investors. Our investors have, to a great extent, realised the merits of financial planning, goal-based investments and asset allocation. SIPs have helped millions of people to realise their financial goals. Let’s not ridicule the work done by the mutual fund industry and all its stakeholders including the distributors and the Regulator. And, it would be a gross injustice to compare mutual fund investors with those who dabble in markets by watching YouTube videos or the equivalent.
What has changed since the nineties probably is that while earlier a few ‘smart’ players could manipulate the market whichever way they wanted quite easily, the Indian market has more depth now, not only because of more retail investors who invest directly or through mutual funds, but also on account of large institutional players such as the EPFO being regular investors in equity funds. I would be inclined to believe that FPIs, even if they leave Indian markets now, would have the confidence that the market has sufficient depth and width for them to engage in a meaningful way and would come back in a bigger way in future. That cannot be bad news.
(The author is former CEO of Union Mutual Fund)
