FPI flows turn volatile in 2021

Foreign portfolio investors' investments turned volatile in 2021.Calendar year 2020 saw strong FPI inflows of $23 billion helped by quantitative easing and fiscal stimulus across the world. However, CY21 has seen the inflows dropping to around $4 bn so far, as the outflows in the last three months of the year have been massive.

As per NSDL data, the OctoberDecember period of 2021 so far has seen outflows worth over Rs 36,000 crore. This was in contrast to January-February 2021 attracting foreign inflows of over Rs 45,000 crore.

"While the overall number is still positive, it hides the volatility seen during the second half of CY21 which saw an outflow of $3.8 bn, driven by the US Federal Reserve's tapering programme and prospects of rate hikes going ahead along with the continued impact of Covid," said a report by ICICI Securities.

However, there were strong FPI flows in the primary market to the tune of $10.7 bn in CY21 compared to $9.8 bn in CY20.

"Despite the increased volatility in the second half of CY21, FPI inflows into primary markets rose above strong inflows of $9.8 bn seen in CY20. FPI inflows into the Indian primary market has seen a rising trend over the past six years," the report said.

However, the volatility in FPI flows have now lesser impact on equity markets. Structural inflows via systematic investment plan, or SIP, into equity schemes of mutual funds have proved to be a counterbalancing force during the current bout of FPI selling.

Structural rise in household savings into equities is emerging as a strong counterbalancing force be it through mutual funds, insurance, domestic pension funds and last but not the least, the huge rise in retail investors participation in direct equity market investment.

"Key sectors where FPIs have bought the most during CY21 are retail, insurance, telecom, consumer discretionary and real estate. Key sectors where FPIs have sold the most during CY21 are banks, IT, consumer staples, pharma and media."