Foreign Portfolio Investment (FPI) refers to the purchase of financial assets, such as stocks and bonds, by investors from one country in the markets of another country.
This type of investment is characterised by its passive nature, meaning that investors do not seek to control or manage the companies in which they invest. Instead, they aim for returns through capital appreciation and dividends.
The latest India Inc. Ownership Tracker report from the NSE reveals that foreign portfolio investors (FPIs) have reduced their stake for the 4th consecutive quarter, with ownership falling to a 12-year low of 17.9 percent. This decline persists despite strong inflows, largely due to the underperformance of FPI-heavy stocks in the Financials sector.
The India Inc. Ownership Tracker, which has been monitoring ownership trends and patterns of NSE-listed Indian companies since 2001, highlights that FPI holdings have experienced notable fluctuations over the past 20 years, driven by global economic trends and geopolitical events.
FPIs have decreased their significant investments in the Financials sector, shown a slight improvement in their stance on Consumer Staples, and continue to hold a negative view on Materials and Industrials.
FPI ownership declines:
Funds shift from Foreign Investors to Domestic Mutual Funds
Foreign portfolio investor (FPI) ownership has continued to decrease across major indices, with the Nifty 50, Nifty 500, and NSE-listed companies experiencing drops of 81 basis points, 44bps, and 36bps QoQ, settling at 24.3 percent, 19 percent, and 17.9 percent respectively.
This marks the fourth consecutive quarterly decline, despite robust foreign capital inflows totalling ~$25.3 billion over the past year. The decline is partly due to the underperformance of FPI-heavy financial stocks, particularly private banks, in Q4 FY24 as well as the whole of last year.
In contrast, domestic mutual fund (DMF) ownership has reached a new all-time high, rising to 10.5 percent, 9.4 percent, and 8.9 percent in the Nifty 50, Nifty 500, and NSE-listed companies, respectively.
DMFs injected a net amount of Rs. 2 lakh crores into Indian equities in FY24, bringing total net inflows over the past three years to Rs 5.3 lakh crore.
FPI ownership trends since 2002
2002 to 2015: FPI ownership in India experienced a steady increase, with a temporary decline during the 2007-08 financial crisis.
Post-2015: The FPI share saw a minor drop due to global uncertainties such as the US-China trade war and Brexit.
COVID-19 Era: After a brief resurgence in 2018-19, FPI ownership fell sharply in early 2020 due to the COVID-19 pandemic. However, the situation improved towards the end of 2020 with increased global liquidity boosting risk appetite and leading to a short-term rise in FPI share.
Post-2020: FPI participation has been declining. Factors contributing to this include ongoing waves of COVID-19, a slowdown in China, the Russia-Ukraine war, and concerns about global economic stability.
Additionally, rapid monetary tightening by central banks, particularly the US Federal Reserve further undermined foreign investor confidence.
End of FY24: FPI ownership in NSE-listed companies fell below 17 percent, reaching more than a 12-year low.
Despite this decline, individual investor participation in NSE-listed stocks has remained relatively stable over the past 10 years, ranging between 8-10 percent. The stability in direct individual ownership, along with a rise in systematic investment plans (SIPs), represents a shift towards indirect ownership.
Written by Shivani Singh
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