Forum Views - January 2023
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Global
FORUM VIEWS - JANUARY 2023
ost Foreign Portfolio Investors (FPIs) are a luckless
bunch judging by their investing track-record in India.
MHistory suggests that FPIs in general have struggled to
make money on their Indian equity investments. This causes
them to perpetuate the myth that Indian markets are hazardous.
On the flipside, a vast majority of domestic investors have
consistently enjoyed bountiful returns. Indian markets have
minted countless millionaires, particularly over the past decade.
The difference in approach for the two sets of investors makes for
a fascinating study.
India opened its stock market to foreign investors in September
1992 as part of its inaugural set of structural reforms. However, it
wasn’t until Jim O’Neill famously invented the notion of BRIC
(Brazil, Russia, China and India) countries in 2001 that investment
in India attracted global attention. Since then, FPIs have had a
curious love-hate relationship with India.
Over this period, FPI flows to India have waxed and waned in a
manner that has puzzled domestic Indian investors. The
cumulative equity investment of FPIs in India has been approx.
USD 200 Billion. The market value of this investment today
amounts to USD 585 Billion. Over the past ten years (2012-22),
the market value of FII holdings has appreciated at a CAGR of
11.5% in USD terms and 16.5% in INR terms. This compares very
Background
favourably with other emerging markets provided the FPIs held
their investment and did not trade in and out of India.
Insights
THE CHEQUERED HISTORY
OF FOREIGN INVESTORS
Praveen Jagwani
CEO
UTI International Ltd.
Market Structure
Broadly the ownership mix of the Indian equity market is as
under
(Singapore)
Company
promoters, 51%
Domestic
Institutional
Investors, 12%
Domestic Retail
individuals, 10%
Indian
Government, 9%
Foreign Investors, 18%
Ownership of Indian Equities
Over the past ten years, domestic ownership of Indian stocks has
been rising consistently while FPI ownership has been declining.
Consequently, FPI flows no longer command the sway they once
had over the Indian markets. It is the domestic flows that
increasingly determine the movement of the stock market.
Domestic investors (DII + Retail) now hold 22% of the equity
market cap, an all-time high level. On the other hand, only 18% is
held by FPIs, the lowest level in ten years.
Domestic equity flows have been robust not just from the Mutual
Funds industry but also through direct equity participation by
millennials. The urban millennials in India have enjoyed growing
incomes and have witnessed rising equity markets. Easy access
to smart phones and proliferation of investing apps have done the
rest.
Domestic Institutional Investors (DIIs - Mutual Funds and
Corporate investors) have cumulatively invested USD 91 Billion in
Indian Equity markets since inception. The current market value of
this investment is approximately USD 450 Billion. The triggers for
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