FPI investment limits rise in stocks after govt decision on sectoral caps

The investment legroom for foreign institutional investors (FPIs) has risen in several companies. This is after the government’s decision to treat sectoral limits as FPI investment limit came into effect from April 1. On Friday, depository firms NSDL and CDSL released a list of companies where additional shares are available for FPIs.
Market players said the higher limits have potential to attract billions in overseas flows but it may not play out immediately. “While the raising of FPI limits for stocks to respective sectoral caps is welcome move, the current FPI sentiment is not very conducive so as to attract flows just on the basis of this relaxation,” said Deepak Jasani, head retail research, HDFC Securities.

Markets players said the sudden spike in shares of stocks such as Kotak Mahindra Bank and Larsen & Toubro was on account of the list issued by NSDL and CDSL. “Few heavyweights like Kotak Bank and L&T recouped some of the losses on account of expected MSCI changes,” said S Ranganathan, head of research, LKP Securities.
He said the index provider will now be able to increase weightage for the domestic stocks. “MSCI will wait for the practical implemen­tation of these changes and the systematic publication of the new sectoral limits applicable to Indian securities before making any changes to the MSCI Indexes,” it had said in a release.

FPIs remain net buyers in January despite heightened geopolitical tensions

Foreign portfolio investors (FPI) remained net buyers in the Indian capital markets in January so far despite heightened geopolitical tensions between the US-Iran and domestic economic challenges.
According to the NSDL data, a net amount of Rs 10,200 crore was invested into equities while a net Rs 8,912 crore was pulled out from the debt segment. This resulted into a net investment of Rs 1,288 crore between January 1 and 17.

Majority of the FPI investment in January came a day after the signing of the US-China trade deal and going forward FPI investments are expected to grow, Harsh Jain, co-founder and COO at Groww said.
"Post a strong comeback in 2019 by the FPIs, the year 2020 began on a muted note. This was largely due to increased volatility witnessed in equity markets worldwide due to heightened geopolitical tensions between the USIran. This spooked the investor sentiment and FPIs chose to withdraw money from emerging markets like India," Ajit Mishra, VP Research at Religare Broking Ltd said.
Umesh Mehta, head of research at Samco Securities said conviction of FPIs in the Indian markets seems to be diluting given the rich valuations of large caps, inflationary tendencies, expectation of a larger fiscal deficit along with other economic challenges.
On the future of FPI flows, Ajit Mishra said, "Signs of easing tensions between the US and Iran and positive developments on US-China trade deal front led to renewed buying interest by the FPIs. Going ahead, earnings and upcoming budget would play a critical role in shaping their investment trend.

FPIs pull out Rs 2415 crore from domestic capital markets in January so far

Adopting a cautious approach amid the US-Iran tensions, foreign portfolio investors (FPI) have pulled out a net sum of Rs 2,415 crore from the Indian capital markets in January so far.
As per latest depositories data, FPIs invested a net amount of Rs 777 crore in equities and pulled out Rs 3,192.7 crore from the debt segment between January 1-10. This translates into a cumulative net outflow of Rs 2,415.7 crore.

Overseas investors have turned net sellers in January after remaining buyers for four consecutive months since September 2019.
"Cautiousness among foreign investors was apparent as they closely watched the developments on the global front before investing in the Indian equity markets. Geopolitical turmoil triggered by increased tension between US and Iran played a key role in the way equity markets behaved globally," said Himanshu Srivastava, senior analyst manager research at Morningstar Investment Adviser India.
However, both the US and Iran have shown their intentions to de-escalate military tensions. This may result in the rebuilding of risk-on sentiment which may be positive for foreign flows into Indian equity markets going ahead, he added.
Additionally, FPIs have the Budget announcements in their sights.
"We can expect the government to make announcements to boost the economy, including infrastructure spending. FPI investment into India will pick up in a bigger way following budgetary announcements aimed at improving the economy," said Harsh Jain, co-founder and COO at Groww.

India's weak economic data turns FPIs from net buyers to net sellers in Dec

Reversing their buying trend, foreign portfolio investors (FPI) turned net sellers in December with a net outflow of Rs 244 crore from the capital markets amid subdued economic data.
According to the depositories data, foreign investors pulled out a net sum of Rs 1,668.8 crore from equities. FPIs, however, invested Rs 1,424.6 crore on a net basis in the debt segment, resulting in a total net outflow of Rs 244.2 crore in December so far.

FPIs had been net buyers for two months to November. They invested Rs 16,037.6 crore in October and Rs 22,871.8 crore in November on a net basis.
"FPIs adopted a cautious approach while investing in Indian equities, on the back of subdued economic indicators. It has not been a good year for the Indian economy so far and the recently released GDP number which continued the southward march for the seventh quarter in a row falling to 4.5 per cent reaffirmed the slowdown in the Indian economy," said Himanshu Srivastava, senior analyst manager research, Morningstar Investment Adviser India.
FPIs would continue to be watchful of the domestic environment and tread cautiously, he added.
Echoing the views, Harsh Jain, co-founder and COO Groww said, "Trump threatening to continue the US-China trade war well past 2020 is definitely making global investors cautious. The repo rate was not reduced, unlike FPIs' expectations. Plus the latest GDP numbers are also responsible for bearish behaviour of FPIs.

FPIs infuse Rs 17,722 cr into Indian markets in November so far; still wary

Continuing their buying spree, foreign portfolio investors (FPIs) infused a net Rs 17,722 crore into the Indian markets in November so far amid encouraging domestic and global cues.
According to depositories data, overseas investors pumped in a net sum of Rs 17,547.55 crore into equities and Rs 175.27 crore in the debt segment during November 1-22, taking the cumulative net investment to Rs 17,722.82 crore.

FPIs were net buyers in the preceding two months as well. They infused a net Rs 16,464.6 crore in October and Rs 6,557.8 crore in September into the domestic capital markets (both equity and debt).
However, some experts said FPIs are still wary of increasing their allocation to the Indian markets.
Umesh Mehta, head of research at Samco Securities said, "FPIs have become relatively cautious on India given the high valuations and Nifty hovering near its all-time high levels. Huge divergence between the large and small/midcaps is making them weary to commit further in a big way to the Indian bourses." Also, the expectation of weaker GDP numbers in the coming months, among other factors, is making them "hesitant to invest full throttle", he added.
Himanshu Srivastava, senior analyst manager research at Morningstar Investment Adviser India, said the buying broadly indicates that FPIs continue to build conviction on the Indian equity markets since "positive domestic and global environment has ensured that FPIs are hooked to the Indian equities".
He added that "this trend is expected to continue over the short-term provided there are no surprises and domestic and global environment continue to be conducive." Commenting on the future trajectory of FPI flows, Harsh Jain, co-founder and COO at Groww, said that "for inflows to be very large in quantity, we might have to wait a bit longer or hope for some big economic factors to play out."

FPIs infuse over Rs 3,800 crore into capital markets in October so far

Indian capital markets witnessed a net inflow of over Rs 3,800 crore by foreign portfolio investors (FPI) in October so far on the back of steps taken by the government to revive domestic demand coupled with positive global cues.
The depositories data showed that overseas investors pumped in a net amount of Rs 3,769.56 crore into equities and Rs 58.4 crore in the debt segment, taking the total net investment to Rs 3,827.9 crore in this month so far.

FPIs have been net buyers for the second consecutive month. In September, FPIs invested a net Rs 6,557.8 crore in the domestic capital markets (both equity and debt).
Investment in September had come following net outflows in July and August.
Considering the extreme negative trends witnessed in the month of July and August, where FPIs went on a selling spree, the scenario in the months of September and October so far, directs towards the emergence of a positive trend, said Himanshu Srivastava, senior analyst manager research at Morningstar Investment Adviser India.
"The steps taken by the government to revive domestic economic activity has finally found favour among foreign investors. Also, a reprieve in the US-China trade war would help increase risk-appetite among global investors which could lead to increase foreign flows into emerging markets such as India," he added.
Commenting on global developments Alok Agarwala, head of research and advisory at Bajaj Capital said, "The bulk of inflows in the equities was due to favourable global cues as the UK and European Union reached a new Brexit deal and a partial US-China deal being done on the trade front. These developments have eased concerns over global economic growth as Brexit and US-China trade war have been for a long time upsetting the fabric of markets." However, going forward, FPI flows will be influenced by how the economy performs and how soon corporate earnings recover. The US Fed's monetary stance and global liquidity will be crucial in determining FPI flows. The further progress in US-China trade deal would also help the inflow in the emerging market as investors would encourage to take risk-on trade, Agarwala added.

Govt may soon take a decision on tweaking FPI surcharge proposal

The government will soon take a decision on tweaking the foreign portfolio investor (FPI) surcharge proposal, which has spooked the markets since its announcement in the Budget last month.
According to official sources, changes could include exempting or ring-fencing FPIs structured as trusts or associations of person, a step which may require only a circular; reducing the impact of the tax by grandfathering their income for a few months; or making the transition from a trust structure to a company structure tax-neutral. “Currently, multiple options are on the table and no decision has been finalised yet. A few measures will be announced soon, now that the finance minister has met FPIs and market participants,” a government official told Business Standard.

On Friday, Finance Minister Nirmala Sitharaman, along with ministry officials, met representatives of mutual funds, investment banks, FPIs and others. Participants said after the meeting that it was mostly a one-way communication, wherein officials including Economic Affairs Secretary Atanu Chakraborty heard them out, but were non-committal on the specifics of what the government would do. Market participants discussed various issues, including the ease of investing for both domestic and foreign players. "The FM has said that these issues would be resolved in a time-bound manner," said a participant.
Besides FPI surcharge, other issues that were discussed include abolishing the long-term capital gains tax, a review of the dividend distribution tax, simpler Know-Your-Customer (KYC) norms for FPIs, need for a stable tax regime, and reducing cost of transactions.
FPIs who participated in the meeting included Goldman Sachs, Nomura, Blackrock, CLSA, Barclays, and JP Morgan.
“We are hopeful that some decisions will be taken after today’s meeting, that these discussions will lead to quick actions,” said a representative who attended the meeting.
Market players talked about the current state of the economy and the financial markets. They said there was a need for companies to raise equity and debt capital for growth to return, and for this, market sentiment had to improve. They talked about whether the LTCG tax and the surcharge hike on FPIs could be revisited, and whether LTCG was really required when investors were making losses. Industry players spoke about the difficulty in building the bond market, especially considering a large section of investors remained risk averse.
Participants spoke of easing KYC requirements and whether a uniform banking or Aadhaar-based KYC could be developed for investing across the capital market. Market players suggested EPFO money can be invested across indices, other than the Nifty and Sensex stocks.
According to sources, FPIs discussed the impact of the surcharge hike on non-corporate FPIs and the difficulty in converting from trust to corporate structures. The possibility of brain drain and the hike dissuading overseas fund managers of Indian origin managing offshore funds from shifting to India was also discussed. FPIs spoke about making section 9A more attractive and easing restrictions on FPIs in the debt market.
The equity benchmarks rose for a second straight session on Friday amid hopes that the government may take some market-friendly measures to jumpstart the sluggish economy and assuage investor concerns over taxation.
The meeting is part of the exercise being undertaken by the minister to firm up steps to increase investments and boost economy, which is showing signs of slowdown. During the meeting, it was also suggested that employees’ provident fund should be increase its exposure in the stock market, which in turn would improve liquidity, industry and official sources added.
Talking to reporters after the meeting, Vikaram Limaye, CEO and MD of the NSE, said the minister was “very receptive”. He, however, did not elaborate on the discussions. President of Association of National Exchanges Vijay Bhushan suggested that transaction cost in capital markets should be reduced and brought in line with the global rates.
Raman Aggarwal, chairman of Finance Industry Development Council, was of the view that there is a need to look beyond banks for funding of NBFCs. He was for setting up a National Housing Board (NHB)-like regulator for the NBFC sector as well.
In her Budget speech, Sitharaman had said: “Those in the highest income brackets, need to contribute more to the nation’s development. I, therefore, propose to enhance surcharge on individuals having taxable income from Rs 2 crore to Rs 5 crore, and Rs 5 crore and above so that effective tax rates for these two categories will increase by around 3 per cent and 7 per cent respectively.” She backed the decision in the discussion on the Budget in Parliament and the Finance Bill was passed without any changes on this front.

No relief from super-rich tax for FPIs structured as trusts: Sitharaman

Foreign portfolio investors (FPI) functioning as trusts in India will have to pay the tax surcharge proposed in Budget, said Finance Minister Nirmala Sitharaman on Thursday.
FPIs may consider the option of structuring as companies and FPIs functioning as trusts may consider being registered as companies, said Sitharaman in Parliament.

Sitharaman, in her Budget speech on July 5, proposed a tax increase of 3 per cent for individuals with an annual income of between Rs 2 crore and Rs 5 crore, and 7 per cent for those earning more than Rs 5 crore.
The additional taxes apply to individuals, and groups of individuals who are an Association of Persons (AoP) or a body of individuals. It takes the tax rate of someone earning Rs 2 crore up to 39 per cent, and for those earning more than Rs 5 crore the rate climbs to at least 42.7 per cent.
The realisation that the new tax likely applies to the trusts through which many foreign investors put money into Indian financial markets sent stocks plunging last week.
(With inputs from Reuters)

FPI inflows into equity markets till May 2019 is the best in six years

Foreign portfolio investor (FPI) flows to the equity market till May 2019 have been the best in the past six years. Till May 2019, FPIs have pumped in nearly $11 billion on expectation of more business-friendly measures and continuity in ongoing policies post the outcome of the general elections.
And their bet proved correct with the Narendra Modi – led National Democratic Alliance (NDA) winning the 2019 general election with a thumping majority. FPIs remained net buyers for the fourth straight month in May.

In the first five months (January – May) of the current calendar year 2019 (CY19), FPIs have invested a net of Rs 76,051 crore ($ 10.9 billion) into the Indian equities. During the same period of CY18, they were net sellers of Rs 1,599 crore. On Monday, June 3, 2019, FPIs turned net buyers of Rs 994 crore, taking their total net investments in equities to Rs 77,045 crore for CY19, as per data available with NSDL.
Mutual funds, on the other hand, have been cautious and have mostly been fence-sitters. On a YTD basis, their investment in equities totals Rs 3,027 crore, as compared to Rs 59,372 crore in the corresponding period in 2018.
The strong FPI inflow has taken the benchmark indices to their respective all-time high with the S&P BSE Sensex closing above the 40,000 mark for the first-time ever on Monday. Thus far in CY19, the S&P BSE Sensex and Nifty 50 index have rallied 12 per cent and 11 per cent, respectively.
“Market discourse was dominated by politics for the larger part of H1CY19, with apprehensions around potential fractured verdict. With the return of Mr Modi as Prime Minister with a bigger majority for the Bharatiya Janata Party (BJP) and near two-thirds majority for the NDA, those worries are more than adequately addressed. From market’s perspective, the focus should now shift to fundamentals and the economy,” said analysts at Motilal Oswal Securities in a recent report.
Though India will remain on foreign investor’s radar, the pace of flows seen over the last few months going ahead may slow, analysts say. Foreign investors, according to them, will now wait-and-watch how the economy takes shape in the backdrop of doubts over monsoon, interest rate trajectory and other global events such as the US – China trade war.
“FPIs have invested at a scorching pace since the past few months. It is in the anticipation of policy reforms they have come in a big way. I think they will wait for the Budget announcements and other policy measures before the flow to India resumes in a big way. That said, the market valuation, too, is also a cause for concern,” explains U R Bhat, managing director at Dalton Capital.
A silver lining amid this is the fall in oil prices over the past few weeks. In the midst of the global trade war, crude prices have seen a significant fall (down by over $10/barrel) and global interest rates have almost crashed (US 10-yr yields down by 60 basis points in last three months). Both these augur well for India on the external / fiscal / monetary front, analysts say. The backdrop is well set for the government to capitalise on these trends and drive the growth outlook higher.
Most foreign brokerages, too, remain bullish on Indian equities and have revised their targets for the S&P BSE Sensex / Nifty50 post the general election outcome. Morgan Stanley, for instance, expects the S&P BSE Sensex to hit 45,000 by June 2020 as their base case – up 12.5 per cent from the current levels. Their bull-case level for the index is 50,000 by June 2020. BNP Paribas, too, sees the S&P BSE Sensex at 42,000 by December 2019-end.
Net investment in Rs crore
Year FPIs Mutual fund
2019 76,051 3,027
2018 -1,599 59,372
2017 49,737 32,070
2016 15,454 9,648
2015 42,425 22,550
2014 45,804 -10,343
2013 83,205 -12,604
Between January-May 2019
Source: NSDL

FPIs press exit button, pull out Rs 3,207 crore from Indian markets in May

Reversing their three-month buying streak, foreign investors pulled out a net Rs 3,207 crore from the Indian capital markets in the first seven trading sessions of May amid the US-China trade tensions and uncertainty over the election results.
Prior to this, foreign portfolio investors (FPI) poured in a net Rs 16,093 crore in April, Rs 45,981 crore in March and Rs 11,182 crore in February in the domestic capital markets (both equity and debt).

During the period between May 2-10, FPIs invested a net sum of Rs 1,344.72 crore in equities but pulled out a net Rs 4,552.20 crore from the debt market, taking the total net outflow to Rs 3,207.48 crore, latest depositories data showed.

Markets were closed on May 1 on account of Maharashtra Day.
"While the long-term growth prospect remains for India, we have seen short-term headwinds in May," said Alok Agarwala, Senior VP and Head - Investment Analytics at Bajaj Capital.
Foreign investors have been net buyers in the Indian markets for the past three months after central banks of various developed countries changed their stance on monetary policy, leading to improved global liquidity conditions.
However, "the recent reversal of trend in the Indian capital markets can be attributed to the emerging discussions over US-China trade war and uncertainty over election outcome, among other factors," said Harsh Jain, COO at Groww.in.
Agarwala attributed the outflow from debt market to higher supply of bonds (G-secs) in the current financial year and rising crude oil prices that will affect the current account deficit, rupee and push up inflation to some extent.
Further, he said "the key risk for the FPI inflow in the Indian market could be an escalation in US-China trade war and the formation of a coalition government post-election if any single party cannot get a clear majority.