Significant Decline in Foreign Portfolio Investment

India witnessed an unprecedented 99% decrease in Foreign Portfolio Investment (FPI) inflows in 2024, plummeting from Rs 1.71 lakh crore in 2023 to a mere Rs 2,026 crores, as reported by the National Securities Depository Limited (NSDL).

Factors Behind the Decline

Experts attribute this sharp decline to the robust performance of the US economy, which has attracted investments into US bonds, money markets, and equities, thereby impacting emerging markets like India. Additionally, India's own challenges, including high market valuations, a declining GDP growth rate, reduced industrial production, and subdued corporate earnings growth, have made it less attractive to foreign investors.

Impact of Global and Domestic Events

The general elections in India led to reduced government expenditure and infrastructure development, further dampening economic activities and FPI inflows. Meanwhile, a stimulus in China briefly redirected $53 billion into Chinese equities, drawing capital away from Indian markets during September and October.

Sector-Specific Challenges

The Indian banking and non-banking financial sectors faced significant hurdles, with the RBI tightening unsecured lending rules and liquidity constraints. This led FPIs to sell shares worth $35 billion in this sector throughout the year.

Silver Lining

Despite these challenges, FPIs showed continued interest in India's primary markets, indicating faith in specific long-term growth prospects. The increasing presence of domestic investors also provided market stability, allowing FPIs to withdraw without causing significant market disruption.