Global economic factors, recessionary fears in advanced economies led to FPI sell-off: Economic Survey

A view of the BSE building in Mumbai. File
| Photo Credit: Vivek Bendre

Global economic factors such as inflationary pressures, monetary tightening by central banks, and recessionary fears in advanced economies exerted pressure on FPIs to sell in Indian markets, Economic Survey 2022-23 said on January 31, 2023.

In addition, investors were sitting on gains from Indian stocks that could be realised to offset losses elsewhere, the survey noted.

These factors led to foreign portfolio investors (FPIs) pulling out a net amount of ₹16,153 crore from the Indian capital markets during April-December FY23 as compared to an outflow of ₹5,578 crore in the year-ago period, with both equity and debt segments witnessing net outflows.

Segment-wise, FPIs made a net withdrawal of ₹11,421 crore from equity markets and ₹12,400 crore from debt markets. On the other hand, they invested a net amount of ₹8,662 crore through debt Voluntary Retention Route (VRR) during the period under review.

However, on account of strong macroeconomic fundamentals of the Indian economy and the improvement in market risk appetite from time to time, assets under custody of FPIs increased despite the outflows driven by global factors, the survey said.

Total assets under custody with FPIs increased by 3.4% to ₹54 lakh crore at the end of November 2022 as compared to ₹52.2 lakh crore at November-end 2021.

Unfazed by withdrawal by FPIs, Indian stock markets gave positive return during April-December 2022 as investments by Domestic Institutional Investors (DIIs) acted as a countervailing force against FPI outflows, rendering the Indian equity market relatively less susceptible to large-scale corrections.

The Indian stock market saw a resilient performance, with the bluechip index Nifty 50 registering a return of 3.7% during April-December 2022, and BSE benchmark Sensex closing 3.9% higher at the end of December 2022, from its closing level on March 31, 2022.

Even among major emerging market economies, India outperformed its peers in April-December 2022, while global stock markets declined because of geopolitical uncertainty.

“Net DII inflows and net investment by mutual funds in equities were observed during FY23 (until November 2022),” the survey said.

The 42-member mutual fund industry saw net inflows to the tune of ₹70,000 crore in 2022 (till November) as compared to ₹2.5 lakh crore a year ago.

Despite the lower net inflows compared to last year, the mutual fund industry’s assets under management (AUM) rose 8.1% to ₹40.4 lakh crore at the end of November 2022, on year-on-year basis, thanks to the market performance.

This year’s mutual fund flows included a net inflow of ₹90,000 crore in the equity-oriented schemes and ₹1,091 crore in solution-oriented schemes. However, net withdrawal of ₹1.1 lakh crore was seen from the debt schemes as well as ₹13,649 crore from hybrid schemes.

As per the survey, outflows from liquid funds and hybrid schemes were mainly affected by increasing interest rate cycles, liquidity requirements and advance tax commitments by corporates.