FPIs brought in almost all foreign flows in FY21 | Economic Times

Mumbai: Hot money dominated the flow of overseas funds to India last fiscal raising the risk of heightened volatility in financial markets whenever the ‘sudden stop’ comes with the Federal Reserve hints of tapering its bond purchases.The combined flow through FPI and FDI rose 80% last fiscal taking India’s forex reserves to a new high. RBI data show almost the entire surge in inflows was due to portfolio flows with durable FDI flows remaining flat.Total foreign investment rose 80% from $44 billion to $80 billion, according to latest Reserve Bank data. The rise is almost entirely due to foreign portfolio inflows which rose more than 20 times from $1.4 billion in FY20 to $36.8 billion in FY21.After an initial pullout in April 2020 following the pandemic induced lockdown globally, foreign investors continued to invest in Indian equities in a big way. But as the second Covid-19 wave intensified in India, foreign portfolio investors pulled out about $2 billion since April this year reversing inflows of $7.6 billion in the January-March quarter."High FPI flows is a reflection of ample global liquidity, still there is positive sentiment towards India in the medium term," said Anubhuti Sahay, head of Shout Asia, economic research, Standard Chartered Bank. "While risks of FPI outflows exists, given that it comes after a gap of two years, the overall quality of flows is not concerning.”