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FPI investments: FPIs neutral on India now, cautious in pockets, says Akshay Thakurdesai of BNP Paribas

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The Foreign Portfolio Investors (FPIs) sentiment is currently “neutral” on India, says Akshay Thakurdesai, Head of Securities Services India for BNP Paribas. In an interview with ET, Thakurdesai explains that the FPI outflows could accelerate if the US Federal Reserve tapering begins earlier than market expectations.



What is the mood of FPIs in terms of India?


The sentiment of Foreign Portfolio Investors (FPIs) in India is currently neutral. There are pockets where foreign investment levels have continued to see growth while in certain segments, we have seen more caution. Factors like the third wave of Covid-19, the pace of vaccination across the country, the spike in crude oil prices and higher inflation are some of the challenges facing the Indian markets.

Since early June, we have seen a sell-off by FPIs, but this needs to be seen in the context of an overall cautious stance on Asian equities. The fear of rate hikes in the US may explain the sell-off, making emerging markets equities less attractive. We see the market continuing to monitor this space for cues on what FPIs would do going ahead. Having said that, despite the Second Covid Wave, economic growth has picked up rapidly as seen in the high frequency indicators and the June auto sales recently.

India remains one of the fastest growing markets with the World Bank and the International Monetary Fund predicting an 8.3 per cent GDP growth 2021-2022. In addition, as other emerging markets are discussing rate hikes to control inflation (Mexico recently raised rates), India remains a country with an accommodative central bank. These are positives that are aiding the current Indian market mood.

Of late, we have started witnessing some sell-off by FPIs in Indian markets. Do you think the outflow trend will continue?
We believe that in the near term, the equity markets will be range-bound as it awaits global cues, same would be the FPI behavior towards the Indian markets. In the event the US Federal Reserve tapering begins earlier than market expectations (resulting in a rate hike), we would expect FPI selling to accelerate and vice versa.

How is India faring in terms of new FPI registrations?
Being one of the fastest growing major economies in the world and being one of the largest in terms of Gross Domestic Product (GDP) and purchasing power parity, India has evolved as a major destination from a global investment flows standpoint.

In recent times, the robust FPI flows came on the back of a faster than expected economic recovery supported by multiple tranches of stimulus packages in the last one year. Total number of registered FPIs crossed 10,000+ in March 2021, and total investments hit $595 billion compared to $332 billion in March 2020. FPI Investments into India are being driven from the USA, Singapore, Mauritius, Luxembourg, United Kingdom, Ireland, Japan, Canada and many more countries.

New FPI registrations saw an uptick in January 2021 as buoyant market conditions spurred the setting up of funds focused on India and emerging markets. The month saw more than 100 registrations after seven months. The number of FPIs crossed the 10,000 mark for the first time in March 2021 with SEBI data showing 10,178 registrations in total.

What are the India plans for BNP Paribas custodian services? What prospects do you see for India custodian business?
BNP Paribas India has a full-fledged presence in corporate and institutional banking, offering products across major business lines. As a country with one of the highest saving rates, there is a visible shift in asset allocation away from traditional investment avenues like gold, property, bank deposits towards financial assets, presenting an opportunity for the securities services industry and banks like us to support this shift. Further, Indian markets and the securities services industry are witnessing rapid advancement in the way we use technology and we have announced a number of innovative solutions – be it clearing and settlement or corporate actions or foreign exchange services.

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