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RBI Reported a ‘$36 Billion’ FPI Inflows into Equities, the Highest Record Since FY13

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RBI Reported a ‘$36 Billion’ FPI Inflows into Equities, the Highest Record Since FY13

The Reserve Bank of India(RBI) in its recent report stated that Foreign portfolio investors(FPIs) pumped inflows into equities in India have made the highest record of $36 billion in FY21 up to March 10, which is the highest one since FY13.

  • Foreign direct investment (FDI) inflows also jumped to $44 billion in FY21 (till January 2021), from $36.3 billion a year ago.
  • RBI reported that the Household debt to GDP ratio has jumped sharply to 37.1% in Q2 of FY21 while the savings rate plunged to a low 10.4%.

Foreign portfolio investment (FPI) is investments that consist of securities and other financial assets held by investors in another country. It does not provide the investor with direct ownership of a company’s assets.

Equity investment – It is an investment in a company by purchasing shares of that company in the stock market. These shares are typically traded on a stock exchange.

Key points of RBI’s report :

i.Quality improvement: 

  • As per the report, the quality of FPI inflows also improved during the period as Category-I foreign investors increased their stake to a high 95% of total equity assets at the end-February compared with 87% at the end-December 2019.
  • Category-I foreign investors – central banks, sovereign wealth funds, pension funds, regulated entities, and multilateral organizations

i.Foreign direct investment (FDI):

  • FDI inflows jumped to $44 billion (till January 2021), from $36.3 billion a year ago, which was driven by the massive inflows in November and December ($6.3 billion) 2020.
  • It is moderated in January due to lower inflows into equities.

iii.Foreign Exchange (Forex) reserve:

  • The foreign exchange reserves as of March 5 are at $580.3 billion down from the all-time high of $590.2 billion (equivalent to 18.2 months of imports) on January 29, 2021.

ii.Financial technology (Fintech) Sector:

  • Investments: There is a 60% increase in fintech investments in the country and surpassed China by clocking 33 fintech fundraising deals worth $647.5 million.
  • Fund Raising: In February 2021 alone, fundraising by the fintech sector increased 46% to $200 million, as against $137 million a year ago.

Global Scenario:

  • There is a sudden flow of liquidity in the global financial markets after the US (United States) announced a $1.9 trillion pandemic relief package, which ensured the regular flow of assets into emerging markets like India.
  • Except for India, most Asian and emerging markets also have seen FPI outflows. This calendar year to date, South Korea and Taiwan have seen FPI outflows of $11 billion and $7 billion, respectively.

Household debts rises to 37.1% of GDP, savings fall 10.4% in Q2

RBI reported that when the economy contracts or shrinks, household savings will increase, and when the economy recovers it fall as people become more confident of spending.

Key points of the report:

  • Household Savings: It jumped to an extraordinary 21% in Q1 of FY21 when GDP contracted by a record 23.9 %, and when GDP contraction moderated to 7.5% in Q2 FY21, Household savings decreased or plunged to 10.4%.
  • But this was said to be higher than 9.8 percent registered in Q2 of FY20.
  • RBI stated that there was a notable fall in Household savings in the form of currency to 0.4% of GDP in Q2 from 5.3% in Q1.
  • Household debt: The household debt to GDP ratio has been steadily increasing since Q1 of FY19, has jumped sharply to 37.1% in Q2 of FY21 from 35.4% in Q1.
  • Household loans: There was also a significant pick-up in the share of household loans in the overall credit market, which increased by 130 basic points(bps) or 1.3% to 51.5% in Q2 of FY21.
  • Household investment in mutual funds: It is declined to 0.3% from 1.7%, while savings in insurance moderated to 3% from 3.2% in Q1
  • Aggregate bank deposits steadily rose and touched Rs 142.6 lakh crore in Q2, an increase of Rs 4 lakh crore since Q1.

Recent Related News:

Following the 7th edition of Grant Thornton Bharat’s Britain Meets India report, the Foreign Direct Investment (FDI) inflow from the United Kingdom (UK) to India has increased from $898 million in 2015- 16 to $1,422 million in 2019-20.

About Reserve Bank of India (RBI):
Established – 1st April 1935
Headquarters– Mumbai, Maharashtra
Governor– Shaktikanta Das