Foreign Investors’ Net Equity Investments In India Fall To Lowest Level Since 2016

Foreign portfolio investors’ cumulative net investments in Indian equities have dropped to their lowest level in nearly a decade after prolonged selling, underscoring a weakening foreign appetite for the domestic stock market.

Aggregate net investments by foreign portfolio investors (FPIs) in Indian shares stood at ₹7.3 trillion as of 1 June, according to data from the National Securities Depository Ltd (NSDL). The level is the lowest since 2016. The data captures annual net investments and withdrawals by overseas investors in Indian equities since 1993.

Competition From Other Emerging Markets

The decline comes as Indian equities face increasing competition from other emerging markets attracting global capital linked to the artificial intelligence (AI) and semiconductor investment cycle.

India’s stock market, valued at about USD 4.9 trillion, has also slipped out of the world’s five largest equity markets by value for the first time in three years. It now trails technology-heavy markets such as Taiwan and South Korea.

Foreign Flows Remain Under Pressure

Institutional equity strategists expect foreign investor participation to remain subdued in the near term. According to a recent brokerage note, India currently offers lower relative attractiveness compared with several emerging-market peers.

The note said earnings growth in India is likely to remain slower than in commodity-focused and technology-driven emerging markets.

The brokerage also noted that India has limited exposure to the global AI and semiconductor investment cycle, which could continue supporting capital flows into competing markets over the next one to three years.

The pressure on sentiment has intensified following the recent oil price shock linked to tensions involving the US and Iran.

Ownership Pattern Shifts

Foreign investors have steadily lost market share in Indian equities over the past decade. At the same time, domestic mutual funds have increased their presence in the market, supported by consistent inflows from retail investors. Mutual funds now account for close to 20% ownership of listed companies, overtaking foreign investors on several measures.

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The growing global focus on artificial intelligence has also triggered questions about India’s medium-term growth drivers. The shift in global investment preferences, combined with persistent foreign selling and stronger interest in AI-linked markets, has weighed on overseas investors’ positioning in Indian equities over the past year.

Sources:

The Economic Times

CNBC TV18