FPI Saviour or Destroyer?

At a time when the market observers had started to believe that Indian markets can survive an onslaught of foreign portfolio investments (FPIs) owing to steady inflows from domestic investors, the recent violent correction highlights how dependant Indian equity markets are on FPI investment flow. Yogesh Supekar and Anthony Fernandes highlight why and how FPIs are crucial for the Indian equity markets

- Yogesh Supekar and Anthony Fernandes

There are many ways an investor evaluates a quality stock. Some track the PE ratio or the valuations while a few observe technical trends before making an investment decision. Says long-time investor Rahul Gaikwad who follows fundamental analysis to identify quality stocks: “One of the most significant factors before buying any stock for me is FPI ownership. FPI investment in the stock means the stock is attractive in the eyes of global investors and that is good enough for me to invest my funds. Of course I do my own fundamental analysis but FPI ownership seals the deal for me.”

“FPI ownership and extremely high interest in HDFC’s group stock is just an example. I am bullish on the pack as FPIs almost always keep on buying these shares,” he adds. This indicates the clout FPIs have on the minds of investors. If an investor gets a hint that the foreign portfolio investors are going to increase stakes in a particular stock, he or she may seriously consider quickly buying shares of that company – fundamental analysis becomes secondary. What are these FPIs and why are they respected at all times? Should investors track FPIs? Are FPIs good for the Indian equity markets or they should be banned in a phased manner? Does FPI indicate clean money or otherwise?

Defining FPIs

FPIs are essentially corporate bodies, broad-based funds, foreign individuals or pension funds that are registered outside India but want to participate in the Indian equity markets.

Size of FPIs