FPI flows in 2022 – a tale in two parts

• Foreign portfolio investors have had contrasting views on India through calendar year 2022.
• While FPIs pulled out ₹2.32 lakh crore from Indian equities and bonds between January and June 2022, they pumped in ₹92,763 crore in the second half of the calendar year.
• Financial services majors received inflows of ₹14,205 crore in November itself.
• Analysts say this is due to foreign investors turning to domestic-facing sectors like banks and FMCG, which are “immune to global shocks”.

Capital flows from foreign portfolio investors (FPIs) in 2022 reflect two distinct trends – while the first half of the year witnessed an aggressive sell-off, the second half was about their return to the Indian markets.

FPIs offloaded Indian equities and bonds worth ₹2.32 lakh crore in the first half of 2022 – with the sell-off beginning in October 2021 as foreign investors anticipated the US Federal Reserve to embark on a quantitative tightening cycle. The sell-off continued through June this year – when the US Fed hiked rates thrice – after which the reversal started.

“FPI flows towards India and other emerging markets from July 2022 started to turn largely positive with bouts of moderate selling. The above behaviour could be again signalling that the aggressive rate hikes by the US Fed may be approaching its peak going ahead,” said a report by ICICI Securities.


During the first half of 2022, India’s benchmark indices – the Nifty50 and the Sensex, fell between 10.4-10.5%.

The reversal – exit Russia, enter India

While the US Fed is not done with the rate hikes just yet, FPI flows have gained momentum – between July and November, Indian equities and bonds have witnessed a net investment of ₹92,763 crore from FPIs, according to data from NSDL.

According to Hitesh Jain, lead analyst – institutional equities at Yes Securities, this reversal is thanks to investments exiting from Russia due to its war with Ukraine and finding their way to India.

“FIIs are now pouring money in domestic-facing sectors like banks and consumption stocks which are immune to global shocks and traction is apparent in terms of India’s credit growth and consumer spending,” he said.

Data shows FPIs are aggressively pouring money into sectors like financial services – out of the net equity investments of ₹36,238 crore in November, the financial services sector alone accounted for ₹14,205 crore.

Overall, at the end of November, FPIs held ₹16.35 lakh crore worth of financial sector assets under custody (AUC) across equity and debt segments, out of the total AUC of ₹53.98 lakh crore.

As far as the full year is concerned, the net investment by FPIs in Indian equities and bonds is still in the red, as FPIs have withdrawn ₹1.39 lakh crore so far.

Since the beginning of July, the Nifty50 and the Sensex have seen a huge rally – both gaining 18% – making them one of the best performers among the major indices of the world.

Analysts suggest there could be a slight moderation in FPI flows going forward. “Going into 2023, Indian equity growth can receive a mild blow as foreign portfolio investor flows might weaken slightly for India and instead shift to China, as prospects of its economy fully re-opening post-Covid by next year [improve],” Priyanka Sachdeva, analyst, Phillip Nova, told PTI.

(With inputs from PTI)

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