In a dazzling resurgence, foreign investors have graced the Indian equity markets with an influx of nearly Rs 1.5 lakh crore in 2023, fuelled by optimism over the country’s resilient economic fundamentals amid shadows of a gloomy global scenario. Experts believe that the positive trend may continue in 2024.

This follows Indian equities witnessing the worst-ever net outflow of Rs 1.21 lakh crore by FPIs in 2022 on aggressive rate hikes by the central banks globally after net inflows for three consecutive years.

Going forward, as the general elections approach next year, political stability and economic growth will become focal points for foreign investors. Besides, global cues on the inflation and interest rate scenario would dictate the flow of foreign money into Indian equities, said Himanshu Srivastava, Associate Director - Manager Research at Morningstar Investment Research India.

India, with its promising position for economic growth, is expected to continue attracting foreign investment flows, he added.

As of now, the foreign portfolio investors (FPIs) have made a net investment of around Rs 1.5 lakh crore in the Indian equity markets and around Rs 60,000 crore in the debt market. Collectively, they pumped over Rs 2 lakh crore into the capital market, according to data available from the depositories.

Of Rs 1.5 lakh crore net equity market inflow, close to Rs 43,000 crore have been invested in the first two weeks of December following the enhanced political stability, owing to the BJP’s success in recent elections across three significant states. If this trend persists, it could become the best year for FPI flow.

FPIs made a net infusion of Rs 25,752 crore in equities in 2021, Rs 1.7 lakh crore in 2020, which was the best year, and Rs 1.01 lakh crore in 2019.

In the year 2022, the flows from foreign investors were largely driven by factors like inflation and interest rate scenarios in developed markets, such as the US and UK, currency movement, the trajectory of crude oil prices, geopolitical scenario and the health of the domestic economy, among others, Srivastava said.

Heightened FPI investment was triggered by the nation’s resilient economic fundamentals, forward-looking policy reforms, optimistic corporate earnings outlook, global liquidity trends, and a growing recognition of India’s enduring long-term growth potential, said Bharat Dhawan, Managing Partner, Mazars in India. Mazars is an international audit, tax and advisory firm.

“India is one of the top investment destinations of FPIs. There is a near consensus now in the global investing community that India has the best prospects among the emerging economies for sustained growth for many years to come,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“This growth has the potential to create phenomenal wealth through the stock market. FPIs are investing to benefit from this potential wealth creation,” he added.

After pulling back for three consecutive years, foreign investors made a comeback in the debt markets as well this year, as they injected around Rs 60,000 crore in 2023 (till December 15), marking a noteworthy shift in their capital flow.

They took out funds totalling Rs 15,910 crore in 2022, Rs 10,359 crore in 2021, and Rs 1.05 lakh crore in 2020.

The announcement by JP Morgan Chase & Co in September that it will add Indian government bonds to its benchmark emerging market index from June next year has influenced the inflow in the country’s bond markets this year, said Mayank Mehraa, smallcase Manager and Principal Partner at Craving Alpha.