Foreign Portfolio Investments (FPIs) in Indian equities witnessed a significant decline in 2024, with net inflows amounting to over ₹5,000 crore. This drop in investments can be attributed to various factors such as elevated domestic valuations and geopolitical uncertainties. However, experts are optimistic about a potential rebound in FPI flows in 2025, driven by a cyclical upswing in corporate earnings, particularly in sectors like capital goods, manufacturing, and infrastructure.
On the other hand, concerns over a prolonged global recession and cheaper investment alternatives in other emerging markets like ASEAN and Latin America could restrict the inflow of FPIs into Indian equities. Despite the challenges, factors like geopolitical escalations, central bank interest rate cuts, and potential US tariff sanctions could act as tailwinds for FPI investments in Indian markets, according to industry experts.
In 2024, FPI outflows were recorded in several months due to a combination of global and domestic factors. The reduced inflow into Indian equities was primarily driven by elevated valuations, prompting investors to shift their investments to attractively valued Chinese equities. Additionally, heightened geopolitical tensions and global economic uncertainties contributed to the cautious stance adopted by foreign investors.
Despite the decline in FPIs in equities, foreign investors showed a marked preference for Indian debt markets in 2024, influenced by India’s inclusion in global bond indices and expected interest rate cuts by the US Federal Reserve. The growing interest in Indian government bonds is further expected to attract more FPI inflows into the debt market.
Overall, the fluctuating trends in FPI investments in 2024 reflect the dynamic nature of global and domestic factors influencing investor sentiment. While challenges persist, there is optimism for a potential rebound in FPI flows in 2025, driven by a combination of economic factors and external developments that could shape the investment landscape in the coming year.
