The Relentless March of FPIs to the Exit Gate
- Foreign portfolio investments consist of securities and other financial assets that are held passively by a foreign investor.
- This does not provide the foreign investor with direct ownership of the financial asset in question.
- FPI could be used for Money Laundering.
- Exits of large amount of FPI from a country can led to the depreciation of that currency as seen in the 1997 Asian Financial Crisis.
- FPIs sold assets worth about ₹50,000 crore in June 2022. This is the second highest sell-off in a month since 1993, after March 2020.
- The companies are dealing with supply side shortages due to the rising demands post pandemic.
- Along with this, there have been a rise in prices of Sunflower and wheat supplies, to name just two commodities, due to the invasion of Ukraine by Russia.
- Add to the mix the U.S. Federal Reserve raising the benchmark interest rate starting March this year. Which has made FPIs see US as a much more stable market.
- All these factors combined have given Indian market an image of being a risky investment, which resulted in the outflow of FPIs from India.
Benefits of Foreign Portfolio Investments are as follows:
- Portfolio diversification: FPI enables investors to diversify their portfolios on the international stage.
- International Credit: FPI can give creditors a large crest base as it provides access to credit in foreign nations.
- Benefits from the Exchange rates: If an investor has an FPI in a foreign country with a stronger currency than their own country, the difference in exchange rates between the two countries can benefit the investor.
Source The Hindu