Let’s understand the FPI or FII investments over the period of last 25 year.
1992 to 1999
Major investment inflow from FPIs or FIIs started from the year 1992-93. Post-liberalization a lot of things have been changed in India, particularly in Indian Capital Market where a lot of foreign flow started coming in.
For the first 4-5 years the major inflows were in the equity sector, means stock market inflows were seen majorly. Fixed security investment started from 1996-97, that is FIIs were investing into fixed income securities of Indian Companies or government securities.
In the year of 1998-99, for the first time we saw negative flows. The reason behind this was Asian currency crisis. In equity we saw outflows around 717 crore rupees and in debt around 867 crore rupees, which together amounted to almost 1,584 crore rupee outflows from out capital market.
In 2000-01 we saw a small outflow around 273 crore rupees in debt sector. We saw some great inflows in 2003, 2004, 2005. In 2005-2006, we again saw outflows around 7,334 crore rupees in the debt sector, but because of bullish market trend, equity was an attractive asset class which had inflows around 48,801 crore rupees in the same year.
In 2008-09, as everyone remembers the Lehman crisis (Lehman brothers went bankrupt), that was the negative year for equity markets. Majority of the investments were negative. That year we saw almost 47,706 crore rupees of outflows from the equity market, but the debt market was still positive with investments around 1,895 crore rupees. So, the net outflow from India was almost 45,811 crore rupees.
The period from 2009 to 2011 was a very positive phase for Indian capital markets. 2011-12 was a little dull and 2012-12 was again a great year.
In 2013-14, RBI raised the interest rated by 2.5% to 3%. Because of that capital flows from debt market were negative amounting to 28,060 crore rupees. But equity was net positive with 79,709 crore rupee inflows.
2014-15 was an election year with strong government at center, a full majority government. That year we saw the highest flows in India amounting almost 2,77,460 crore rupees. (Equity – 1,11,333 crores and Debt – 1,66,127 crores)
In 2015-16, both equity as well as debt market saw negative flows. In 2017-18 was a positive year with debt market being the net attracter and having investment worth 1,19,036 crore rupees.
Coming to the current year (up to the month of October 2018), equity market experienced outflows worth 46,272 crore rupees. These figures are almost equivalent to the outflow figures of 2008-09, even with increase in the economy size, profitability and the market capitalizations of the companies. Debt securities too, huge outflows of 57,776 crore rupees. US government securities trading at more than 3% was the major reason behind debt outflows. So, the FII’s that invest in debt securities feel that rather than parking money in Indian government securities with 7-8%, its better to park that money in to Us securities and avoid the rupee depreciation along with that.
Here, we should give credit to the Domestic Institutional Investors (DIIs) and also PF money. Because of the net inflows from them high carnage in equity markets was not seen. These are very positive sights for our capital market. Our DII’s are coping up with the outflows of FII’s and our dependency on FII’s is decreasing gradually, which is a very good factor.
Therefore, India is not chasing speculative money now and it is chasing strategic money which is coming through Foreign Direct Investments (FDIs). The Indian economy is very strong right now. The interest rates are still below 8% and the inflation rate too is around 4%, which are very good signs. Next year is expected to be a positive in terms of FIIs and FDIs.