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FPI in India: Transforming The Capital Market

“In December, FPIs were big buyers in financial services and also in IT. FPIs also bought in sectors like autos, capital goods, oil and gas and telecom.” - Dr. V K Vijayakumar (Chief Investment Strategist, Geojit Financial Services) (Mint)
Title image for 'FPI in India: Transforming The Capital Market' article on, featuring an illustrated globe centered on India with iconic landmarks like the Taj Mahal, interlaced with vibrant stock market graphs and digital nodes symbolizing the networked Indian economy.

Table of Contents


Section 1: Insights into India's Capital Market.

Section 2: Unraveling FPI's Role in India's Market Evolution.

Section 3: Analyzing FPI's Investment Patterns in India.

Section 4: FPIs in India: Comparative Insights and Future Projections.

Section 5: Global FPI Influence in India: A Case Study Approach.




In the dynamic landscape of global finance, Foreign Portfolio Investors (FPIs) have emerged as pivotal players in shaping the contours of India's capital market. Their growing footprint, marked by substantial equity purchases and an unwavering confidence in the market's potential, underscores India's emergence as a formidable economic powerhouse. As custodians of cross-border capital flows, FPIs navigate the Indian market's complex terrain, buoyed by its robust growth prospects and the allure of lucrative returns. Governed by the vigilant oversight of the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), these global investors engage in the vibrant dance of capital in both primary and secondary markets. With their strategic investments, often pushing the boundaries of regulatory limits, FPIs not only fuel the market's dynamism but also mirror the resilience and promise of the Indian economy. This article unfolds the story of these influential market players, diving into their history, strategies, and the profound impact they wield on India's financial tapestry.

Section 1: Insights into India's Capital Market

“India’s economic outlook is robust with close to 7% multi-year GDP growth likely, Foreign investor positioning is light and hence corrections will likely get bought into”. - Jefferies Analysts(Reuters)
Section image for 'Insights into India's Capital Market' as part of 'FPI in India: Transforming The Capital Market' on It depicts a rupee symbol in a hand, overlaid on bullish stock market trends, symbolizing economic growth in India's capital market.

Latest Developments in India's Capital Market

India's capital market, a vital component of its bustling economy, continues to exhibit resilience and growth. As of January 15, 2024, the National Stock Exchange (NSE) boasts a market capitalization of a staggering ₹372.75 Lac Crores (approximately $4.5 Trillion), reflecting the robust health of Indian equities. The NIFTY 50 index stands at 22,097.45, evidencing a positive upward trend, while the NIFTY Bank index sees a slight dip at 48,125.10. The USD/INR futures, too, suggest a stable currency outlook at 82.9175. Furthermore, the Bombay Stock Exchange (BSE) market capitalization has soared to new heights, reaching ₹3,63,00,558.07 crore, testament to the market's dynamic nature. Significantly, FPIs have infused approximately ₹4,800 crore into equities in early January, a clear indication of their confidence in India's economic fundamentals.

Analyzing the Indian Economy's Current Pulse

India's economy showcases a promising trajectory of recovery and growth. The anticipated GDP growth for FY 2023-24 hovers between 6.0% and 6.8%, with a robust 7% growth expected for the year ending March 2023. Remarkably, credit growth in the MSME sector has surged over 30.5% from January to November 2022. The Central Government's capital expenditure, up by 63.4% in the first eight months of FY23, acts as a catalyst in this economic upswing. The RBI projects the headline inflation or the CPI for 2023-24 at 5.4%, from 5.1% earlier. The housing market, aided by the return of migrant workers, has seen a decline in inventory overhang. A notable increase in exports in FY22 and the first half of FY23, coupled with private consumption at 58.4% of GDP in Q2 of FY23, further solidify this growth narrative. Despite global challenges like the COVID-19 pandemic and geopolitical tensions, the Indian economy is on a path of broad-based recovery.

Policy Dynamics Shaping FPI Influence

The investment landscape for FPIs in India has been significantly shaped by a series of regulatory and policy changes:

  • Introduction of FPI Regulations (2014): SEBI consolidated Foreign Institutional Investors (FIIs), Sub Accounts, and Qualified Foreign Investors (QFIs) into a new category called FPIs.

  • Liberalization of FPI Regulations: The RBI has undertaken steps to liberalize FPI regulations, aiming to attract more foreign capital.

  • Double Taxation Avoidance Agreement (DTAA): Favorable tax provisions under DTAA with countries like France and Luxembourg have encouraged FPI investments.

  • Changes in FPI Investment Limits: SEBI has set limits on the investment percentages for FPIs in Indian securities, based on the security type and FPI category.

  • Introduction of Qualified Foreign Investors (2012): QFIs were introduced as a new route for smaller foreign investors to participate in Indian markets.

  • Amendments to FPI Regulations (2018): The FPI Third Amendment Regulations by SEBI introduced key changes, reshaping the FPI investment framework in India.

These regulatory and policy shifts play a crucial role in the evolving dynamics of FPI engagement in the Indian financial markets.

Section 2: Unraveling FPI's Role in India's Market Evolution

Sectional image for 'The Genesis and Growth of FPI in India,' part of the 'FPI in India: Transforming The Capital Market' article on It displays a timeline highlighting the evolution of FPIs against the backdrop of the Indian Parliament, signifying key milestones like the opening to FPIs in 1992, SEBI's role, and legislative frameworks guiding FPI investments in India's economic renaissance.

The Genesis and Growth of FPI in India

The journey of Foreign Portfolio Investments (FPIs) in India dates back to the early 1990s, following the country's economic liberalization. FPIs, which include holdings like stocks, bonds, and mutual funds, represent passive ownership in contrast to Foreign Direct Investment (FDI). In 1992, India opened its doors to FPIs, initially through Foreign Institutional Investors (FIIs), and later expanded to include investments in corporate debt and government securities. Regulated by the Securities and Exchange Board of India (SEBI), FPIs in India encompass a range of investor groups, adhering to the norms of the Income-tax Act, 1961, and the Foreign Exchange Management Act, 1999.

Infographic for 'The Timeline of Events Leading to FPI Involvement in the Indian Capital Market,' part of the 'FPI in India: Transforming The Capital Market' article on It displays a table outlining key milestones from 1991 to 2023, highlighting the economic liberalization, regulatory changes, and the increasing FPI inflows, marking India's capital market evolution.

Decoding FPI's Investment Drive in India

The Indian market's allure for Foreign Portfolio Investors stems from multiple factors:

  • Robust Economy: India's strong economic fundamentals, resilience to global challenges, and high domestic consumption rates are key attractors.

  • International Index Inclusion: The inclusion of Indian government bonds in prominent indexes like J.P. Morgan Chase & Co.'s and Bloomberg’s Emerging Markets Indexes is set to attract significant foreign funds.

  • Attractive Returns: Higher debt yields in India compared to other markets make it an attractive destination for FPIs.

  • Market Liquidity: FPIs contribute significantly to the liquidity and efficiency of India’s financial markets.

  • Positive Market Performance: India's stock market has shown commendable growth, with notable surges in key indexes, making it one of the best-performing markets globally.

The Investment Mechanism of FPIs in India

Diagram for 'The Investment Mechanism of FPIs in India,' featured in the 'FPI in India: Transforming The Capital Market' article on It illustrates the regulatory framework, reporting standards, remittance norms, and investment avenues guiding FPI operations within the Indian market, set against a cityscape overlaid with financial symbols.

Investment by FPIs in India's capital market involves a structured approach:

  • Registration with SEBI: Mandatory for operating under the SEBI (Foreign Portfolio Investors) Regulations, 2014.

  • Investment Avenues: FPIs can invest in primary and secondary markets through the Portfolio Investment Scheme (PIS).

  • Investment Limits: Restrictions on the percentage of investment in equity and debt instruments of Indian companies.

  • Payment and Remittance Norms: Governed by Schedule II of FEM (Non-debt Instruments) Rules, 2019.

  • Reporting Requirements: Adherence to RBI's specified reporting standards is essential for compliance.

Section 3: Analyzing FPI's Investment Patterns in India

Investors appreciate the fact that India is a domestic market-driven economy. The consumption story is great, with people climbing up the value chain-Andrew Holland, CEO, Avendus Capital Alternate Strategies (Financial Express)

Infusion of FPIs in Indian Capital Market YOY for the Last 5 FY

The analysis of FPI net investments in India over the last five financial years reveals significant insights. The data indicates a robust pattern of investments, particularly in the equity sector.

Graphical analysis for 'Infusion of FPIs in Indian Capital Market YOY for the Last 5 FY' section of the 'FPI in India: Transforming The Capital Market' article on The image displays a line graph and table with data on Equity, Debt, Debt-VRR, Hybrid investments, and Total investment in INR Crores from 2019 to 2024(M1), illustrating the trends in FPI investments in India.

  • Equity: A total of ₹352,253 crores were invested over the period.

  • Debt: A net withdrawal of ₹25,430 crores was observed.

  • Debt-VRR: A total of ₹50,674 crores were invested.

  • Hybrid: A total of ₹29,809 crores were invested.

  • Total Net Investment (INR Crores): The total net investment across all categories summed up to ₹407,295 crores.

  • Highest Investment Year: The year with the highest investment was 2023.

  • Highest Investment in a Single Year (INR Crores): The highest investment in a single year was ₹237,062 crores in 2023.

This analysis provides a comprehensive view of the FPI investment trends in India over the last five financial years, highlighting the substantial investments in the equity sector and the overall positive net investment across all categories.

FPI Update: Recent Moves in FY23-24

Section image for 'FPI Update: Recent Moves in FY23-24' in the article 'FPI in India: Transforming The Capital Market' on It features a flowchart with various branches such as tax and regulatory updates, SEBI's regulatory changes, FPIs' market movements, and FPIs' asset portfolio, set against a financial district backdrop, representing key FPI activities and market insights for FY23-24.

  • Tax and Regulatory Updates: The CBDT has introduced new Income Tax Return Forms for AY 2023-24 and extended the deadline for manual filing of Form 10F. Additionally, the Delhi High Court's decision on capital gains exemption under tax treaties adds clarity to FPI operations.

  • Regulatory Changes by SEBI: SEBI has enabled Asset Management Companies to offer management and advisory services to FPIs operating from IFSC, broadening their operational scope.

  • FPIs' Market Movements: Despite withdrawing a significant amount from Indian equities in FY23, FPIs have shown renewed interest, especially in early 2024, indicating confidence in India's economic fundamentals.

  • FPIs' Asset Portfolio: The record inflow of $20.2 billion in 2023 and substantial investments in the IT sector highlight the sector's growing appeal to FPIs.

Spotlight on Sectors: Where FPIs are Investing

  • Financial Services: Dominating FPI investments with holdings worth $191.3 billion.

  • Software Sector: Attracting substantial investments of $76.1 billion.

  • Oil & Gas, Automobiles & Auto Components, Pharmaceuticals & Biotechnology: These sectors have also seen significant FPI inflows, collectively holding a large portion of FPI assets.

Sectoral Analysis: The Less Favored by FPIs

  • Key Underperforming Sectors: Information Technology, Consumer Durables, Pharmaceuticals, Metals, and Realty are currently experiencing downturns.

  • Debt Market: The negative net investment in debt securities indicates a cautious approach by FPIs towards the Indian debt market.

  • Hybrid Instruments: The divestment in hybrid instruments suggests a shift in FPI risk appetite and investment strategy.

These insights provide a comprehensive picture of the current investment climate in India, highlighting the sectors that are attracting FPIs and those that are facing challenges. This analysis helps in understanding the broader economic trends and FPI strategies in the Indian market.

Section 4: FPIs in India: Comparative Insights and Future Projections

Timeline infographic for 'Forecasting FPI Trends in India for FY24-25' section of the 'FPI in India: Transforming The Capital Market' article on It outlines the financial landscape, highlighting increased investment values, sectoral focus, equity market inflows, and overall FPI flows with specific figures and projections for the fiscal years 2023 to 2024.

Key FPI Players in the Indian Market

  • Europacific Growth Fund: With $131 billion in assets under management, it has approximately $8.384 billion invested in Indian equities, accounting for 6.4% of its total assets.

  • Franklin Templeton Investment Funds: This fund's specific asset holdings in India are not explicitly detailed, but it has key investments in major Indian firms such as HDFC Bank Ltd., ICICI Bank Ltd., and HCL Technologies Ltd.

  • Morgan Stanley Asia (Singapore): While exact figures for Indian investments are not disclosed, the fund is a significant investor in Indian equities.

  • Dodge & Cox International Stock Fund: Known for its diversified portfolio in India, including major holdings in HDFC, TCS, Infosys, and ICICI Bank.

  • First State Asia-Pacific Leaders Fund & Aberdeen Global Indian Equity: Both funds have substantial investments in India, with Aberdeen managing assets worth $28.6 billion and 14.6% of it in India.

  • Oppenheimer Developing Markets Fund: Similar to Aberdeen, with $28.6 billion in assets and 14.6% invested in India.

  • Copthall Mauritius Investment: Holds a diverse portfolio in various sectors, including significant stakes in Zomato Ltd., APL Apollo Tubes Ltd., and Reliance Industries Ltd.

Investment of FPIs Vis-à-Vis DIIs and Retail Investors in FY23-24: Comparative Study

  • FPIs: Despite being net sellers in the Indian equity market in FY23, FPIs injected ₹21,350 crore into India's primary market in Apr-Aug FY24, indicating a renewed interest.

  • DIIs: Played a pivotal role in supporting the Indian market, with net buying of a record Rs 2.53 lakh crore worth of shares in FY23.

  • Retail Investors: Despite reducing direct participation in Indian equities, their stake in equity holding listed on NSE reached a historic high of 27% in April-August 2023.

Forecasting FPI Trends in India for FY24-25

The fiscal year 2024-25 is shaping up to be a robust period for Foreign Portfolio Investors (FPIs) in India, marked by positive trends and significant investments:

  1. Increased Investment Value: FPI investments in Indian equities rose by 15% to $651 billion in the September quarter of 2023, signaling strong confidence in the Indian market.

  2. Sectoral Focus: FPIs are showing renewed interest in sectors like capital goods, automobiles, and IT, indicating a strategic shift towards high-growth areas.

  3. Equity Market Inflows: In 2023, FPIs made a net investment of Rs 1.71 lakh crore in equities, highlighting robust inflows and investor confidence.

  4. Overall FPI Flows: The total FPI inflow in FY24 reached $30.87 billion, underscoring a continued and growing interest in the Indian economy.

This outlook suggests a promising future for FPIs in India, with substantial investments driving sectoral growth and bolstering the overall economy.

FPI vs. FDI in India: Distinguishing the Two

Comparative table for 'FPI vs. FDI in India: Distinguishing the Two' in the article 'FPI in India: Transforming The Capital Market' on The table outlines key differences between FDI and FPI across criteria such as Nature of Investment, Degree of Control, Investment Horizon, Investment in, and Entry and Exit, set against a backdrop of currency symbols.

  • FDI: Involves direct investments into physical assets, aiming for a lasting interest and high control over the management of the foreign business. It's characterized by a long-term commitment and complex entry and exit processes.

  • FPI: Focuses on investing in financial assets like stocks and bonds, with a more passive approach and minimal control. FPI investments are typically short-to-medium term and offer easier entry and exit options.

Section 5: Global FPI Influence in India: A Case Study Approach

Case Studies: Global FPI Impact in India

  1. Luxembourg's Rising Influence: Luxembourg has emerged as a significant player in India's FPI landscape. Its Assets Under Custody in India surged by 30% to ₹4.85 lakh crore, making it the third-largest FPI contributor. This growth is largely fueled by enhanced financial cooperation and agreements between India and Europe.

  2. France's Strategic Gains: France's rise among the top FPI sources in India is marked by a 74% increase in AUC to ₹1.88 lakh crore. The growth has been facilitated by advantageous tax treaties under the India-France Double Taxation Avoidance Agreement, emphasizing the strategic role of tax policies in FPI investments.

  3. Ireland and Norway's Advancements: Both Ireland and Norway have climbed the FPI rankings, reflecting the global reach and attractiveness of India's investment landscape. Ireland, known for its tax efficiencies, now ranks 5th, while Norway holds the 7th position in FPI investments in India.

  4. Aspada's Impactful Investment: The investment by Aspada in Be Well Hospitals exemplifies the role of FPIs in social impact ventures. This investment underlines how FPIs can contribute to India's social sectors, offering affordable and quality healthcare solutions.

These cases illustrate the significant role of global FPIs in India, showcasing their diverse investment strategies and the impact they have on various sectors of the Indian economy. The examples also highlight the importance of international relations and policy environments in shaping FPI activities.


As we conclude our exploration of the Indian capital market and the dynamic role of Foreign Portfolio Investors (FPIs), several key findings and future implications emerge.

  1. FPI Trends: The investment patterns of FPIs over the last five financial years underscore their confidence in the Indian market. Despite global economic fluctuations, India has witnessed substantial FPI inflows, particularly in the equity sector, highlighting its resilience and attractiveness as an investment destination.

  2. Global Influence: The surge in investments from countries like Luxembourg, France, Ireland, and Norway reflects the growing global interest in India's economic prospects. These countries, leveraging favorable tax treaties and strategic economic policies, have significantly increased their Assets Under Custody, demonstrating the global reach of India's investment landscape.

  3. Comparative Insights: The comparative analysis of FPIs vis-à-vis Domestic Institutional Investors (DIIs) and retail investors reveals a diversified investment ecosystem. While FPIs experienced fluctuations, DIIs and retail investors significantly bolstered the equity market, indicating a robust and varied investor base.

  4. Sectoral Attraction: Key sectors attracting FPI investments, such as financial services, technology, and pharmaceuticals, indicate sectoral strengths and potential areas of growth. Conversely, the analysis of underperforming sectors offers critical insights for future strategic planning and investment.

  5. Future Outlook: The positive outlook for FPIs in FY24-25, with a predicted increase in investments, bodes well for the Indian economy. This optimism is further strengthened by the strategic shift of FPIs towards sectors like capital goods and IT.

  6. Impactful Ventures: Case studies of global FPIs' involvement in India highlight their significant impact beyond mere financial contributions. Investments in social sectors like healthcare underscore the potential of FPIs in contributing to societal welfare and development.

This analysis provides a comprehensive view of the current state and future trajectory of FPI involvement in India. It underscores the importance of a conducive policy environment, strategic global partnerships, and sectoral strengths in attracting and sustaining foreign investments. As India continues to emerge as a key player in the global economy, the role of FPIs will be crucial in shaping its economic landscape and societal progress.

Our journey through the intricate world of FPI investments in India concludes with a note of optimism, reflecting the country's robust economic fundamentals and its appeal as a promising investment hub on the global stage.




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