Markets To See Healthy FPI Inflows Of Up To Rs 2.2 Lakh Crore In FY18: ICRA

Domestic capital markets are expected to register overseas investments worth upto Rs 2.2 lakh crore in the current fiscal, which is an over four-fold increase from the preceding year, according to ratings agency ICRA.

Foreign portfolio investors have pumped in investments amounting to Rs 48,400 crore in 2016-17, ICRA said in a report.

“We expect a net inflow of around Rs 1.8-2.2 lakh crore for 2017-18 compared to Rs 95,600 crore in the first half of this fiscal and Rs 48,400 crore in 2016-17,” the report added.

According to ICRA senior vice president Karthik Srinivasan, FPI investments in the current fiscal are driven by the debt segment which received a net inflow of Rs 1.17 lakh crore during the April-November quarter of 2017-18 with positive net inflows across all months.

“Supported by healthy inflows, the utilisation of the FPI investment limit in government securities and corporate debt increased in the current fiscal despite an enhancement in the permissible investment limits,” Srinivasan said.

Also Read: SEBI May Ease FPI Entry, Allow Listing Of Security Receipts By ARCs

“The equity segment, however, witnessed a net outflow of FPI investment during the August and September amidst concerns on earnings growth, rising valuations and slowing gross domestic product growth,” he added.

The report noted that while the enhancement in FPI limits has reinvigorated the pace of inflows into the debt market, the trend is expected to moderate in the coming months, given the high utilisation levels for government securities and corporate bonds.

However, it observed that the recent rate hike by United States Federal Reserve Bank in December 2017, the ongoing balance-sheet trimming by the U.S. and the passage of the Tax Cuts and Jobs Act of 2017 have pushed up treasury yields in the U.S.

“This has in-turn contributed to a spike in yields for Indian debt securities, which would help to maintain their relative attractiveness for international investors,” it said.

ICRA expects the debt segment to register net FPI inflows of Rs 1.5-1.6 lakh crore in 2017-18.

The rating agency expects Rs 27,000-59,000 crore of FPI flows into equity in 2017-18, noting that such inflows would remain dependent on the pace of economic growth and the strength of the recovery in corporate earnings.

Meanwhile, the report said the number of FPI registrations with the Securities and Exchange Board of India (SEBI) has surged in the past couple of years, with over 4,500 FPIs registered between April 2016 and October 2017 including 1,064 in the current fiscal.

“This increase in FPI registration largely stems from the regulatory compliance requirements following the introduction of the new FPI regulations in 2014-15,” the report said.

“In ICRA's opinion, the complete migration of FPIs from ‘deemed FPI' to the ‘registered FPI' status, and the healthy investment inflows in the current fiscal augurs well and reflects international investors' sustained interest in domestic capital markets,” it added.

Also Read: FPIs' Net Outflow From Equities At Rs 7,300 Crore In December So Far