FPI inflows at $3.5 bn in January on expectations of better earnings

Foreign investors have pumped in a whopping $3.5 billion (over Rs 220 billion) into the country's capital markets in January in anticipation of better corporate earnings and attractive yields. 

However, the pace of FPI flows may slow down in the short term due to the new tax introduced on equity investments, but from the long-term perspective, the scenario continues to look positive, Morningstar India Senior Analyst Manager (Research) Himanshu Srivastava said.

According to the depositories data, Foreign Portfolio Investors (FPIs) infused a net amount of Rs 137.81 billion (Rs 13,781 crore) in equities and Rs 84.73 billion (Rs 8,473 crore) in debt in January -- translating into net inflows of Rs 222.54 billion (Rs 22,254 crore or $3.5 billion). 

This comes following an outflow of over Rs 35 billion (Rs 3,500 crore) by FPIs from the capital markets (equity and debt) in December, depositories data showed.

"High inflows in January is a usual thing because of the purchase happening for building the new fiscal books. The other reason was the anticipation of better earnings and a growth-biased 2018-19 Budget," said Harsh Jain, co-founder and COO of online investment platform Groww.

Dinesh Rohira, CEO of 5nance, an online platform providing financial planning services, said fund infusion can be attributed to anticipation of earnings' recovery and attractive yields.

A slew of factors -- such as positive global markets, promising economic numbers back home, better than expected third-quarter earnings, and IMF's projection to retain the fastest growing economy tag on India in 2018-19 -- created a favourable investment environment for FPIs, Srivastava said. 

"While FPIs made a confident start this year, post Budget, the pace of FPI flows may slow down a bit given the newly added tax implication on equity investments. Having said that, I believe it would be a short-term impact," he said.

"Despite the challenges faced in the short run, India continues to be perceived as a long-term investment destination. As long as it is able to retain this appeal, and continue to fair better on risk-reward profile than other comparable countries, FPIs will continue to invest in India," he added.

Finance Minister Arun Jaitley, in his Budget for 2018-19, introduced 10 per cent tax on long-term capital gains, exceeding Rs 100,000 (Rs 1 lakh), made in the share market.

Also, 10 per cent tax has been levied on distributed income by equity-oriented mutual funds.

In the entire year of 2017, FPIs put in a total Rs 2 trillion (Rs 2 lakh crore) in equity and debt markets. 

Quantum MF Fund Manager-Fixed Income Pankaj Pathak, however, believes FPIs may not be able to repeat this show in 2018 as withdrawal of liquidity and rate hikes in developed economies pick up.