FPI flows

Can India post record FPI flows in the month of December 2023? That remains a million-dollar question, but it is not too far off. At the current level of Rs57,313 crore, Dec-23 flows are just about 10% shy of peak flows of December 2020.

Some big numbers in Dec-23

India saw record monthly flows of FPIs in December 2020 when over Rs62,000 crore of equity flows came. That was an all-time record, but at Rs57,313 crore, the Dec-23 figure is just about 10% away from that figure. The year 2023 has been a volatile year for FPI flows as it has veered between persistent buying and persistent selling. Ironically, months of September and October saw heavy FPI selling and November saw things turn around only in the last week. In this background, the FPI flows are big.

Let us look at interesting numbers. For the year 2023 so far, FPIs have already infused Rs1,62,265 crore into equities. That is just short of the record inflows from FPIs in year 2020 at Rs170,000 crore. In short, if the FPIs are able to infuse another Rs8,000 crore into the Indian equities in the last week, then it is not just a record month in terms of FPI flows, but also turn out to be a big record year in terms of FPI flows into Indian equities. Whether that happens or not will depend on how the FPI flows into India pan out in the last week of December, a week that is normally known to be a very quiet week for FPIs.

What triggered these flows?

That brings us to the million-dollar question of what has driven these record flows into India. Of course, there are several triggers for the same. The big triggers came from the GDP growth upgrade in India and the US Fed making a shift in its stance from hawkish to a more dovish stance. Indian economy has finally found itself in the Goldilocks syndrome where growth is coming in much higher than expected while the inflation is coming much lower than the street expectations. That has been really driving FPI flows into India in a big way. In addition, corporate results in the last few quarters have shown a vast upsurge on the bottom line, even if not on the top line. But, there is more to the story.

It is all about the FOMO effect

Fear of missing out (FOMO) has been a big factor in the sharp revival in FPI flows. One thing the FPIs learnt the hard way is that Indian markets are not really dependent on FPI flows. If you add up the AUM of LIC and mutual funds, it is 50% more than the AUM of FPIs in India. For FPIs, the message is quite clear. They cannot afford to miss out on a chance to invest in the fastest growing economy in the world, which is poised to grow from $3.5 trillion to $5 trillion in the next 7 years. That is the real fundamental story that is driving the FPIs into Indian equities. Next year, the FPI flows into India may get much bigger than this!