FPI Inflow Momentum To Continue, Says Q India's Arvind Chari

Foreign institutional investments in Indian equity markets are expected to gain traction as the country's share in the global GDP rises in the coming years, according to investment manager Arvind Chari.

Foreign portfolio investors have pumped Rs 47,148 crore into Indian equities in June, marking the highest inflow in 10 months.

Despite the global pool of around $300 trillion, the allocation to India from various sources stands at $1.5 trillion, accounting for less than 1%, Chari, , chief investment officer at Q India (UK), an affiliate of Quantum Advisors, told BQ Prime. He expects this allocation to increase in tandem with India's expanding share in global GDP, which will rise from the current 3% and foreign investors will look to take advantage of this growth.

Global funds, with a focus on public equity markets, are directing their investments towards India within the broader context of their emerging market Asia portfolios. However, there is now a gradual shift towards dedicated India-focused funds.

"Most of my talk with global institutional investors is to think about India as a dedicated approach," Chari said.

According to him, inflows into the Indian market are coming from passive India Exchange Traded Funds, along with a lot of reallocations by global emerging market funds. "In 2021 and 2022, the global emerging market funds with India allocation have been net sellers. It got amplified late last year when there was a surge of getting money back into China."

But geopolitical incidents dampened momentum in the Chinese market, prompting some investors to redirect their capital back to India.

According to Chari, India has managed its macro situation "very well" given that oil prices have remained below the $100 mark, and the inflation and interest rate scenario is normal.

While the developed world's ongoing rate tightening cycle may impact near-term tactical flow, India remains well-positioned for the longer term, he said.

Global investors were disappointed by investments made between 2007 and 2012, particularly in areas like infrastructure, Chari said. These investments did not deliver on "unrealistic expectations" surrounding economic growth rate, market size, and rate of return, he said.

Chari cautioned against any type of "hype" regarding foreign inflows.

Speaking on the 40-year journey of reforms, Chari said successive governments have opened up the markets, liberalised entry of foreign capital into India, and built good regulatory framework and institutions.

These measures have resulted in the country growing at 6-7% on real GDP terms and 11-12% in nominal terms. This growth will continue for many years and Indian companies have been able to convert macro growth into revenue and profitability, he said.

"We show a long-term return chart of GDP growth in equity returns ... Indian markets and regulations have evolved, governance structure has got better, the market size has increased. In India, you can do strategic investment across FDI, FPI, private equity, or any asset class which is a long-term allocation," Chari said.