FPI numbers plunge in Q1 as Covid-19 hits market sentiment

According to experts, work from home, volatility in stock markets worldwide, and redemption pressures compelled investors to defer new investment plans. 

The Covid-19 pandemic has taken a toll on foreign portfolio investor (FPI) registrations in the June quarter, with investors putting their plans on hold amid the prevailing uncertainty. 

New monthly registrations averaged more than 100 this year until April, before dipping to 17 and 35 in May and June, respectively. In July, it showed some improvement with the first two weeks seeing 28 registrations, data from Prime Database shows. Possibly, clearance of pending applications made 2-3 months ago led to the higher number in March. 

According to experts, work from home, volatility in stock markets worldwide, and redemption pressures compelled investors to defer new investment plans. 

“The number of new FPI registrations witnessed a dip largely due to the pandemic, lockdown-like conditions, and economic uncertainty globally. Sebi (Securities and Exchange Board of India), on its part, eased the process by allowing new FPIs to submit scanned copies of documents. There has been some revival of FPI interest over the last few days as India switches to ‘unlock’ mode and economic activities pick up,” said Suresh Swamy, partner, PwC India. 

Sebi has allowed use of scanned copies of documents for renewing registration till August 31, after receiving representations from stakeholders about extending relaxation on compliance requirements for FPIs. 

The newly introduced common application form (CAF) is expected to help. CAF obviates the need for FPIs to have their documents attested by Apostille or by the Indian High Commission. It is supposed to provide single window clearance, wherein applicants fill one electronic form and obtain registration with Sebi, PAN from the income tax department, KYC and open bank and demat accounts in India. 

The pandemic erased over $18 trillion from global markets in February and March, before a recovery from April, according to World Federation of Exchanges. 

FPIs sold stocks worth Rs 64,000 crore between February and April before turning net buyers in May and June, driven by ultra-loose monetary conditions overseas. They remain net sellers to the tune of Rs 22,000 crore this year. 

“There was a pause in decision-making among FPIs... That will change now and we may see some interest come back in the next few months. It will be a gradual process, however,” said a person who deals with FPIs. 

Analysts believe countries like India might see a long drawn-out recovery, given the low per capita income, poor healthcare facilities, and large population. 

“While FPI flows may continue in India given risk-on sentiment and the weakening USD outlook, compared to other Ems (emerging markets), it will likely remain modest until economic growth recovers, which is still some time away, in our view. Hence, we suggest that investors avoid chasing market rallies and maintain a defensive stance,” said Jitendra Gohil, head of India Equity Research, Credit Suisse Wealth Management, India, in a recent note.

Photograph: Shailesh Andrade/Reuters.