Buy and Sell: New FPI registrations surge even as incumbents bail out

Mumbai: Indian markets continue to catch the fancy of new foreign funds even as incumbents are on a selling spree. Since March, over 200 new offshore funds have registered as foreign portfolio investors (FPIs) with the Securities and Exchange Board of India (Sebi). FPI advisors say another 70-80 new applications at least are in the pipeline and expected to get licences in the next two-three weeks. India now has 9,789 registered FPIs compared with 9,585 on March 1 and 9,533 at the beginning of calendar year, data showed.

The development comes at a time when some marquee foreign funds are trimming their India exposure. Since March, FPIs have net sold equities worth nearly 1 lakh crore, taking the benchmark indices down nearly 25%. If the selloff in debt markets is included, India has seen an overall FPI outflow to the tune of 1.43 lakh crore, NSDL data showed.

Custodians say most of the new registrations are from offshore mid-sized mutual funds and alternative investment funds (AIFs) looking for higher returns in emerging markets such as India over a longer period. While concerns over the fallout of the lockdown on economic growth in the foreseeable future have kept markets on edge, many of these funds are looking for long-term opportunities, said officials at brokerages that service foreign clients.

“A majority of these funds are expected to bring quality capital into Indian equities since they are cash market-focused investors looking at an investment horizon of at least three-five years,” said a senior executive with the custodial service of a foreign bank.

The pace of new registrations has stepped up since March.

“We have seen a significant increase in the number of FPI registrations, particularly in the current calendar year. In fact, data available at the market level shows that compared to a monthly average of 87 accounts opened in the last nine months of 2019, the average in 2020 is 114 accounts,” said Sriram Krishnan, head of securities services, Deutsche Bank India. “This augurs well from a portfolio investment standpoint as, based on our discussions with clients, we feel we can expect flows both into equity as well as into government bonds, via the fully accessible route.”

The easier compliance norms for FPIs could also have encouraged some overseas funds to register. Sebi had introduced a common application form for FPI licences with effect from April 1, effectively providing single-window clearance. The form includes both Sebi and permanent application number (PAN) applications, reducing the compliance burden.

“While at one end we have seen record sale by institutional investors, the new registrations by FPIs do indicate the continuing trust and belief in growth potential for investors in the Indian market,” said Moin Ladha, partner, Khaitan & Co. “This could also be a reaction to the protective measures being undertaken by the government for investments under the foreign direct investment regime and thereby making this route more feasible.”