Foreign investors shy away from India in July; FPI investments fall after hitting 15-month high

While the equity investments in July was less than one-third of the investments in June, investors remained net-seller in the debt and hybrid forms of investments.

After a 15-month high Foreign Portfolio Investments (FPI) in the month of June 2020, it nosedived in July. With only one day remaining in the month, India received FPI of Rs 3,292 crore in July so far, falling sharply from a net FPI inflow of Rs 26,009 crore in the last month, according to the National Securities and Depository Limited (NSDL). While the equity investments in July was less than one-third of the investments in June, investors remained net-seller in the debt and hybrid forms of investments. Last month, Fitch Ratings revised outlook on India’s long-term foreign-currency to ‘negative’ from ‘stable’, and affirmed issuer default rating (IDR) at BBB-, which is the lowest investment grade.

In another major blow to the investors’ sentiment, Moody’s had also downgraded India’s sovereign rating by a notch to ‘Baa3’ from ‘Baa2’ for the first time in 22 years and kept the outlook ‘negative’. Given a severe downfall in India’s rating, RBI Governor Shaktikanta Das had said that it is the government’s policies, macroeconomic fundamentals, and the outlook that matter for the foreign investors, therefore, India will keep on getting foreign portfolio investment (FPI) and foreign direct investment (FDI).

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Media reports suggest that while some experts believe that the investors left the Indian market after profit-booking in the month of June, others believe that the rising cases of coronavirus and escalation of US-China tensions must have acted as a deterrent for the investors, forcing them to pull out investments. Meanwhile, the past two years have been pessimistic in terms of foreign portfolio investments. In FY 2019 and FY 2020, the foreign investors pulled out Rs 38,930 crore and Rs 27,528 crore respectively from the Indian market. For the previous pull-outs, the prolonged slowdown in the Indian economy was held responsible. Further, various credit rating agencies have estimated a severe contraction in India’s economy in the current fiscal as well.