July 10, 2017
Foreign Portfolio Investments
April-June’17
Contact:
Madan Sabnavis
Chief Economist
[email protected]
91-22-67543489
Manisha Sachdeva
Associate Economist
[email protected]
91-22-67543675
Mradul Mishra (Media Contact)
[email protected]
91-22-67543515
I
Economics
The first quarter of FY18 has been marked by significant foreign
portfolio Investments in the country. India has witnessed FPI
inflows of nearly $ 12,231 mn during the April-June quarter of FY18
compared to the inflows of $ 1,590 mn in the corresponding
period last year. This is a very positive factor for the balance of
payments as it comes at a time when the trade deficit is widening
and there is considerable uncertainty on the flows of software
receipts and remittances given the changes that are taking place in
the developed countries and Gulf region.
This growth in FPIs in can be attributed to increase in the inflows
into the debt segment. Around $ 10,110 mn were poured in the
debt segment in Q1FY18 compared with outflows of $611 mn in
the corresponding period last year. On the other hand, equity
segment witnessed a marginal decline of 3% in foreign inflows
during the same time period.
The higher inflow of FPI into the debt segment may be attributed
to the enhanced limits offered to FPIs in the GSec segment as well
as better utilization in the corporate debt market. Further the
interest rate environment has been favourable for such
investments as rates are relatively higher in India compared with
the developed world. Also a relatively stable currency – the rupee
is still one of the better performing currencies, provides comfort to
investors to remain in this market.
Chart 1: Comparison in FPIs during Q1FY17 and Q1FY18.
13500
12231
10110
US $ mn
11000
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8500
6000
3500
2202 2121
1590
(611)
1000
-1500
Total
Debt
FY17
Source: NSDL
FY18
Equity
Economics I
Foreign Portfolio Investments
Monthly Trend in FPIs during Q1FY18
During Q1FY18, the highest inflows in the debt segment amounting to $3,988 mn were in the month of June’17 while FPIs
inflows in equity segment ($1194 mn) were highest in May’17.
In addition to this, an outflow of $88 mn has been witnessed in the first seven days of July’17.
Chart 2: Trend in FPIs during April’17-July’17
5000
4548
3988
4170
3513
US $ mn
3500
3147
2976
2000
500
1194
561
367
Apr'17
-1000
May'17
Total
Debt
June'17
(109)
20
(88)
July'17
Equity
th
Source: NSDL; Data for July is till 7 July’17.
Sector-wise FPIs (Asset under Custody as on June 15, 2017)
A total of $ 450.4 bn has been invested in various sectors as on June 15, 2017, details of which are provided in the table
below.
-
-
Out of the total amount invested in India so far of $ 450 bn, around 86% is in equity and the balance in debt. One of
the reasons is also the setting of limits that have been set for such investment in debt – though they have been
revised and in case of private debt tend to be unutilized.
The table below shows that financial services sector has the largest share of around 23% in the total FPIs inflows as
on June 15’2017, Software Services (8%), Sovereign (7%), Automobiles (6%) and Oil and gas (6%).
Sectors like healthcare services, Coal, Retailing, Hotels, Consumer durables, Hardware technology, realty, media etc.
have negligible share in the total FPI inflows.
The debt segment is dominated by sovereign bonds and this has been the driving force in the inflow of FPI in this
segment. Financial services too have found favour being around a quarter of sovereign debt investment.
The top 5 sectors accounted for almost 2/3rd of total equity flows while in case of debt, sovereign and financial
services accounted for a little over this level. Clearly there is concentration in the flow of FPI to specific sectors.
Typically flows are directed in sectors which are faster growing and relatively open in terms of laws and regulation.
Sectors dealing with natural resources are more vulnerable to changes in policy stance and could impact these
investments.
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Economics I
Foreign Portfolio Investments
Table 1: Asset under Custody as on June 15’2017
Sectors( $ mn)
Financial Services
Others
Software & Services
Sovereign
Automobiles & Auto Components
Oil & Gas
Capital Goods
Pharmaceuticals & Biotechnology
Food, Beverages & Tobacco
Utilities
Household & Personal Products
Construction Materials
Metals & Mining
Chemicals & Petrochemicals
Transportation
Telecom Services
Media
Textiles, Apparels & Accessories
Realty
General Industrials
Healthcare Services
Coal
Retailing
Hotels, Restaurants & Tourism
Commercial Services & Supplies
Diversified
Consumer Durables
Forest Materials
Telecommunications Equipment
Diversified Consumer Services
Hardware Technology & Equipment
Total
Equity
95,523
68,983
34,061
27,152
25,400
20,294
17,458
16,762
13,132
13,167
8,931
6,788
5,694
5,581
5,291
5,346
4,311
3,475
3,205
1,843
1,622
1,163
1,062
985
694
626
249
44
41
3
388,886
Debt
8,199
17,697
33,513
49
9
137
14
860
101
236
112
323
112
1
80
60
19
31
61,553
Total
103,722
86,680
34,061
33,513
27,201
25,410
20,431
17,458
16,776
13,992
13,167
9,032
7,023
5,694
5,693
5,614
5,458
4,312
3,555
3,265
1,843
1,622
1,163
1,081
1,016
694
626
249
44
41
3
450,439
Source: NSDL
Country-wise Asset under Custody
U.S.A. has the largest share of around 32% in the total FPIs with Asset under custody (AUC) amounting to Rs 913,715
crores, followed by Mauritius ( Rs 515,985 cr), Singapore ( Rs 249,675 cr) , Luxembourg ( Rs 253,456 cr) and U.K. ( Rs
135,949 cr) as on May 2017. Norway and Netherlands have the lowest share of around 2% with Asset under custody
amounting to Rs 67,504 cr and Rs 62,621 cr respectively for the same time period.
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Economics I
Foreign Portfolio Investments
Chart 3: Share of Top 10 countries in total AUC as on May’17.
2.7
2.4
2.2
13.3
32.0
2.7
2.9
4.8
8.9
10.3
U.S.A
U.K.
NORWAY
MAURITIUS
JAPAN
NETHERLANDS
18.1
SINGAPORE
CANADA
Other
LUXEMBOURG
IRELAND
Source: NSDL
Intuitively it may be surmised that any interest rate action by the Fed will have a bearing on such flows to the Indian debt
market as investors constantly weigh the relative returns on their funds in alternative markets.
Debt investment
Investments by FPIs in Government Securities
The limits for investments by FPIs in Government securities have been revised for the July-September 2017 quarter. Table 1
below illustrates the increase in different types of instruments.
Table 2: Revised FPI debt limits
Type of Instrument
Government Debt-General
Government Debt-Long term
SDL-General
SDL-Long term
Total
Upper Cap as on July 03, 2017
(Rs cr)
Revised Upper Cap with effect
from July 04, 2017 (Rs cr)
184,901
46,099
27,000
258,000
187,700
54,300
28,500
4,600
275,100
Source: SEBI, NSDL



Limit for FPIs in Central government securities is enhanced by Rs 2,799 crores to Rs 187,700 cr for Q2FY17.
Limit for Long Term FPIs (Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds,
Pension Funds and Foreign Central Banks) in Central Government securities is enhanced to Rs 54,300 crs for the same
time period.
There will be two sub categories in State Development Loans namely, SDL –General and SDL-long term.
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Economics I

Foreign Portfolio Investments
The limit in SDL-general is enhanced from Rs 27,000 to Rs 28,500 and limit for SDL-long term is kept at Rs 4,600 cr.
Comparison of Debt utilization Status in Government securities and corporate bonds

FPI investment limits in government securities
Nearly 99% of FPI limits in Central government securities has been exhausted as on July’7 2017. This is in line with the
utilization limits a year ago. However, the upper limit during the last year (as on July’7 2016) was Rs 144,000 crs in Central
government securities as compared to Rs 187,700 cr as on July’7, 2017.
Table 3: FPI investment Limits in Government securities as on July’ 7, 2017
Type of Instrument
Central Government
Securities-All categories
Central Government
Securities-Long term
State Development
Loans -All categories
State Development
Loans- Long term
Upper limit(Rs cr)
Investment
% of limits utilised
187,700
186,463
99.34
54,300
44,183
81.37
28,500
1,470
5.16
4,600
0
0.00
275,100
232,116
84.38
Total Government
Securities
Source: NSDL

FPI investment limits in Corporate bonds
There has been a notable increase in FPI participation in the corporate bond markets. As on July 7, 2017, around 92% of the
total FPI investments limits in corporate bond market were utilized by foreign investors, higher than the 66% a year ago.
Table 4: FPI investment Limits in Corporate bonds as on July’ 7, 2017
Type of Instrument
Upper limit(Rs cr)
Investment
% of limits utilised
244,323
225,756
92.40
-
40,840
-
1.b.Credit enhanced bonds
23,953
0
0.00
1.c. Unlisted Corporate debt and
securitized debt Instruments
35,000
2557
7.31
1. Total Corporate bonds
1.a.Rupee denominated bonds
overseas
Source: NSDL
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Economics I
Foreign Portfolio Investments
CARE’s view:
 Positive sentiments on account of increased government spending in infrastructure, good monsoon, consumer spending
and implementation of goods and services tax (GST) is expected to bring in the foreign inflows.
 A stronger rupee should also help to keep the Indian market attractive.
 However, capital outflows in the coming months could be triggered as a result of increasing interest rates in U.S.,
protectionism adopted by U.S. and on expectations of reduction in monetary stimulus by European Central Bank and
hence could counter the prospective growth story of the country.
 More FPI inflows are expected in equity segment than in debt segment of the market as almost 99% of FPI limits in
central government debt securities has been exhausted and 92% in case of corporate debt securities.
 There could be some enhancement in these limits on the corporate bonds front too in course of time.
 For the year, FPI of around $ 25 bn may be expected primarily on account of the equity flows as there are limits to which
debt investment can increase from hereon.
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Economics I
Foreign Portfolio Investments
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