Net monthly inflow from foreign investors turns positive for the first time in 2020 — thanks to GSK deal with Societe Generale

Net monthly inflow from foreign investors turns positive for the first time in 2020 — thanks to GSK deal with Societe Generale
  • Foreign portfolio investors pulled out nearly ₹88,000 crore from the Indian market, likely triggered by COVID-19 fears.
  • However, for the first time in 2020, the net FPI flow turned positive in May, standing at ₹13,179 crore as of May 29.
  • Future FPI flows depend on how the COVID-19 pandemic peaks in India, which is expected to happen sometime in June or July.
The net flow from foreign portfolio investors (FPIs) in India turned positive for the first time in 2020, hinting that the investor sentiment has started improving in the market. In the first four months of 2020, FPIs pulled out nearly ₹88,000 crore from the Indian market.

The net FPI flow in May is positive despite the fact that foreign investors pulled out ₹9,000 crore in the time between Prime Minister Narendra Modi’s ₹20 lakh stimulus package announcement, and Finance Minister Nirmala Sitharaman revealing the details of the package.

According to data obtained from the stock exchanges, net FPI flows till May 29 stood at ₹13,179 crore in the cash market. In the index and stock futures, the overall flow remained negative. However, on a cumulative basis, the total FPI flows remained positive at ₹7,483 crore.

Why are FPIs important for India?

FPIs are important for developing economies like India as they bring in a considerable amount of money in the Indian market. They make up for the shortfall of funds from domestic investors and are often the catalysts behind the market’s performance.

FPIs include hedge funds, investment banks, mutual funds and pension funds.

Investment in Hindustan Unilever behind the positive FPI flows in May

The saving grace for the Indian stock markets was Hindustan Unilever (HUL). GlaxoSmithKline (GSK) sold HUL stock worth ₹27,937 crore on May 7 to Societe Generale. On the same day, foreign investors poured in more than ₹19,000 crore into the Indian market.

Without the investment in HUL, the net FPI flows would have remained negative even in May.

After a massive selling spree, FPIs have come back to invest

In the 5 days since PM Modi’s announcement of the stimulus package, FPIs pulled out ₹9,000 crore from the Indian market.

However, since then, FPIs have come back with a net positive FPI flow of ₹3,789 crore. It is likely that the staggered rollback of the COVID-19 lockdown across several states has contributed to improving FPI confidence.

It remains to be seen if the situation improves in June, especially since reports suggest that COVID-19 could peak in India in late June or early July.


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