Discover why market insiders attribute the dip in FPI registrations to worldwide challenges, yet remain optimistic about a robust revival in offshore inflows, propelled by favorable domestic dynamics. Dive into our analysis for an in-depth understanding!
This year witnessed the lowest number of foreign portfolio investor (FPI) registrations in India in over a decade. Despite this, the nation has seen a continued rush of foreign investments. Economic analysts attribute the sharp decrease in new registrations primarily to global financial headwinds. Nonetheless, it’s worth noting that existing FPIs in India have consistently provided outstanding returns in the recent past.
Current Landscape for FPIs in India
The current year saw only 167 offshore funds commencing operations in India, a significant drop from the 604 in 2022, as per figures from the Securities and Exchange Board of India (SEBI). This number was only slightly higher in 2019, with 169 registrations. Despite this drop, 2023 has been a year of strong foreign inflows for India. The nation has outshone other emerging markets, with net FPI inflows totaling ₹2.3 lakh crore. A substantial portion of this investment, ₹1.6 lakh crore, was directed towards equities — marking the best year since 2020.
A Record Year for Combined Investments
When combining the equity and debt investments from FPIs, 2023 has emerged as the most lucrative year since 2014. That year saw offshore investments reach ₹2.5 lakh crore, according to depository statistics.
The Big Players Possibly Hitting a Saturation Point
Top global entities such as Blackrock, Fidelity, and JP Morgan are well-established in managing numerous funds with exposure to India. This extensive management presence has led some offshore fund managers to hesitate in setting up new investment schemes within the nation. UR Bhat, co-founder of Alphaniti Fintech, suggests that the current flow into India might eliminate the necessity for creating a larger number of India-centric funds.
Emerging Opportunities and Trends
Despite the muted data on new fund registrations, Suresh Swamy of Price Waterhouse and Co LLP, identifies budding opportunities within India. He highlights the rise of first-time fund managers establishing operations in the International Financial Services Centre (IFSC), particularly in GIFT City, as a positive trend to be considered in the overall statistics. Additionally, there’s a strong pipeline of funds in wait, and a predicted increase in debt funds, largely influenced by the possible inclusion of Indian bonds.
Navigating Headwinds in the Global Fund Industry
Potential Challenges for Fund Managers
Regulatory specialists are observing the global fund sector as it faces various challenges, such as possible hikes in interest rates and a deceleration in the tech startup arena.
Insights from Industry Experts
Rajesh Gandhi, a partner at Deloitte India, notes, “The recent dip in new FPI (Foreign Portfolio Investment) registrations mainly stems from global pressures rather than India’s economic prospects. In time, we anticipate a steady increase in FPI inflows backed by India’s distinct advantages.”
Further analyzing investor behavior, Gandhi adds, “Despite the growing interest from countries like the UAE and Russia, a significant portion of additional flows is likely to emerge from traditional investors in the US and Western Europe.”
Trends in Off-shore Investment
Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies, elaborates on the evolving patterns of investment, “This year’s near-record FPI investments may suggest that current funds, owing to their commendable past performance, are garnering additional international capital, thereby reducing the necessity for new funds. This could be a reason behind the noticeable reduction in new FPI registrations.”
Factors Influencing FPI Registrations
FPI registrations in India are usually influenced by two key factors: the comparative performance of the Indian market and the regulatory framework governing it.
Regulatory Influences and Market Performance
India’s market has outstripped other emerging markets over the past decade. However, regulatory aspects, like license acquisition and taxation policies, continue to pose significant concerns for investors.
Reforms and Simplifications in FPI Registration
In a move to streamline the process, the market regulator initiated several policy reforms in 2019, simplifying the FPI registration procedures in India. Notably, Sebi, in partnership with the government, implemented a system for seamless single-window clearances for FPI licences.
In the past, offshore funds had to navigate various regulations from multiple bodies including Sebi, the Reserve Bank of India, and the tax authorities,” Holland reflects on the previous complexities.
Concluding on a positive note, he mentions, “Sebi’s efforts to reduce superfluous compliance requirements have also made the FPI registration process more efficient.”
