Foreign portfolio investors (FPIs) channelled Rs 1.7 lakh crore into Indian equities during 2023, reflecting renewed confidence in India's economic fundamentals amid global challenges. December alone witnessed a substantial inflow of Rs 66,134 crore.

Kislay Upadhyay, Founder of Fidel Folio, indicated that while FPI inflows are expected to remain robust, the allocation is likely to be more discerning. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted that the anticipated decline in US interest rates throughout 2024 could spur further FPI investments, particularly in the lead-up to the general elections.

Data from depositories reveals that FPIs made net investments of Rs 1.71 lakh crore in equities and Rs 68,663 crore in debt markets in 2023, aggregating Rs 2.4 lakh crore in capital market inflows. This positive trend contrasts sharply with a net outflow of Rs 1.21 lakh crore in 2022.

Abhishek Jain, Head of Research at Arihant Capital, underscored India's resilient economic outlook and domestic consumption narrative as key attractions for foreign investors. Notably, December's inflow surge followed enhanced political stability, marked by the BJP's electoral successes in significant states.

The shift in FPI strategy can be attributed to declining US bond yields, as highlighted by Vijayakumar. In debt markets, FPIs re-entered with an investment of Rs 68,663 crore in 2023, reversing a three-year decline. This renewed interest is partly influenced by JP Morgan Chase & Co's announcement to include Indian government bonds in its benchmark emerging market index by June 2024, potentially attracting USD 20-40 billion over the subsequent 18 to 24 months.

Himanshu Srivastava, Associate Director-Manager Research at Morningstar Investment Research India, emphasised that this inclusion could enhance accessibility to Indian bonds for foreign investors and fortify the rupee. Jain of Arihant Capital highlighted the growing interest in the debt segment due to inflation considerations, while Upadhyay pointed out the significant growth potential in India's under-penetrated debt market.

Sector-wise, FPIs exhibited a preference for financial, IT, pharmaceutical, and energy sectors, capitalising on India's technological prowess, healthcare capabilities, and sustainable development commitments.

(With PTI inputs)