FPI investments into India in June hit 15-month high; foreign investors return despite poor ratings

FDI, FPI, foreign investors, rating agencies, fitch, moody's, unlock-1

Even as various rating agencies downgraded India’s sovereign credit rating in the month of June 2020, it could not break the trust of foreign investors as FPI inflows stood at a 15-month high level in June. India received FPI of over Rs 26,000 crore last month, which was the highest FPI inflow after March 2019, according to the National Securities Depository Limited (NSDL). The overall FPI inflow was mainly driven by a high volume equity inflow of Rs 21,832 crore in June. foreign investors have invested in Indian stocks despite Fitch Ratings revised outlook on India’s long-term foreign-currency to ‘negative’ from ‘stable’, and affirmed issuer default rating (IDR) at BBB-, which is the lowest investment grade.

Last month, another rating agency Moody’s had also downgraded India’s sovereign rating by a notch to ‘Baa3’ from ‘Baa2’ for the first time in 22 years, and kept the outlook ‘negative’. However, RBI Governor Shaktikanta Das had said that it is the government’s policies, macroeconomic fundamentals, and the outlook matters for the foreign investors, therefore, India will keep on getting foreign portfolio investment (FPI) and foreign direct investment (FDI). Shaktikanta Das had also assured that foreign investors’ trust in India is intact and irrespective of rating upgrade or downgrade, India has continued to enjoy the trust of foreign investors, both in terms of FDI and FPI.

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Meanwhile, as cases related to coronavirus started to mushroom in India, FPI investors left the Indian market, leading to a lifetime high FPI outflow of Rs 1.18 lakh crore in the month of March 2020. The high volume outflow had also made India a net seller for the entire year. The trend of FPI pullout continued for the subsequent two months of April and May too, however, as India stepped out of the nationwide lockdown and entered Unlock-1 phase, the portfolio investments rebounded to pre-corona levels.

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