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FOREIGN PORTFOLIO INVESTMENT FLOW TO INDIA: TREND ANALYSIS (2012-2015)

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This paper analyses flow of foreign portfolio investment (FPI) in India from period 2012-2015. This paper also looks at components of FPI – debt and equity and industry wise FPI inflow during the period is also provided.
time series analysis is done under exploratory analysis using line chart. It was noticed that trend of FPI was quite volatile resulting in zig zag line curve with one shocking decline in may2013. Recent trend of FPI in nov 2015 shoes outflow of INR 9000 crore. This decline can be due to tepid domestic demand resulting in week September quarter earnings of Indian companies, week global demand, melt down of china and expectation of interest rate hike by fed reserve resulting on outflow of investment from emerging markets including India.

Equity is preferred for FPI in 2012-2013 but reversal of trend can be seen in 2014-2015 when debt instrument got majority of FPI. Investors did not find equity giving enough risk adjusted return so they shifted toward debt instruments.

Sector wise trend of FPI is also discussed in the study.

Published in: Economy & Finance
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FOREIGN PORTFOLIO INVESTMENT FLOW TO INDIA: TREND ANALYSIS (2012-2015)

  1. 1. 1 | P a g e CDE November 2015 FOREIGN PORTFOLIO INVESTMENT FLOW TO INDIA: TREND ANALYSIS 2012-2015 Aayush Makkar 15IB303 Global Business Environment Birla institute of management technology, Greater Noida
  2. 2. 2 | P a g e Contents 1. INTRODUCTION ............................................................................................................4 2. REVIEW OF LITERATURE ...........................................................................................4 3. RESEARCH OBJECTIVES ...........................................................................................5 4. TOOLS.............................................................................................................................5 5. ANALYSIS .......................................................................................................................6 Monthly FPI/FII net flow from 2012-2015 (INR crores)................................................7 Debt or Equity in FPI: What investors prefer? ............................................................11 Flow of FPI Among various industries**......................................................................12 Investors prefer Financial services and capital goods Industry................................13 FPI flow among various industry 2012-15...................................................................14 6. Finding and Recommendations ..................................................................................15 7. BIBLOGRAPHY ............................................................................................................16 For any queries or further information contact: AAYUSH MAKKAR MBA- Finance (2015-2017) Birla Institute of Management Technology, Greater Noida Email: aayush.makkar17@bimtech.ac.in https://www.facebook.com/aayush.makkar.9 https://www.linkedin.com/in/aayushmakkar2 Contact: +91 9599382303 WhatsAPP: +91 9654662273
  3. 3. 3 | P a g e FOREIGN PORTFOLIO INVESTMENT FLOW TO INDIA: TREND ANALYSIS (2012-2015) Aayush Makkar Abstract This paper analyses flow of foreign portfolio investment (FPI) in India from period 2012-2015. This paper also looks at components of FPI – debt and equity and industry wise FPI inflow during the period is also provided. Time series analysis is done under exploratory analysis using line chart. It was noticed that trend of FPI was quite volatile resulting in zig zag line curve with one shocking decline in may2013. Recent trend of FPI in November 2015 shoes outflow of INR 9000 crore. This decline can be due to tepid domestic demand resulting in week September quarter earnings of Indian companies, week global demand, melt down of china and expectation of interest rate hike by fed reserve resulting on outflow of investment from emerging markets including India. Equity is preferred for FPI in 2012-2013 but reversal of trend can be seen in 2014-2015 when debt instrument got majority of FPI. Investors did not find equity giving enough risk adjusted return so they shifted toward debt instruments. Sector wise trend of FPI is also discussed in the study. Major sectors which attract major share of FPI inflow were indentified from the database of SEBI (securities and exchange board of India) as follow:- Automobile, Capital goods, Financial services, Pharma & Biotech, Oil & gas, Food beverages & tobacco and Software Services. In January 2014, All sectors witnessed sharp decline in FPI inflows, even 3 of them witnessed FPI outflow, expect Software & services sector that surprisingly saw increment in FPI inflow during that period. Findings and recommendation on these trends which are result of numerous Macro economic variables are given in the Full report.
  4. 4. 4 | P a g e 1. INTRODUCTION Since 1991, when the government of India opened its economy for foreign investment FPI is a major source of investment in Indian financial market. Foreign Portfolio investment or FPI is investment made in India by foreign investors such as governments, mutual funds, pension funds or institutional investors in financial market with expectation of returns on the investment made. FPI can be categorised into two categories first, which is made in equity and second made through debt instruments such as government bonds. Objective of this study is to study the trend of FPI in India during the period 2012-2015 and look at how FPI inflow is different industries/sectors FPI is generally made when investor does not want to commit his investment for long term as he does in FDI in which investment is made in the assets of India this is the main difference in FDI and FPI. When Investors are looking for good returns in short term and wants liquidity of their investment then they go for FPI. Inflow of FPI is generally quite volatile as the investment outflow and inflow depending on various macroeconomic parameters and speculations. In this study we would try to find any visible trend in the inflow of FPI from 2102-2015 and analyse the changes in pattern of FPI in this period. 2. REVIEW OF LITERATURE In this paper we would be doing trend analysis – time series of FPI inflow in India A time series is a sequence of data points, typically consisting of successive measurements made over a time interval. Examples of time series are ocean tides, counts of sunspots, and the daily closing value of the Dow Jones Industrial Average. Time series are very frequently plotted via line charts. Time series are used in statistics, signal processing, pattern recognition, econometrics, mathematical finance, weather forecasting, intelligent transport and trajectory forecasting, Time series analysis comprises methods for analyzing time series data in order to extract meaningful statistics and other characteristics of the data. Time series forecasting is the use of a model to predict future values based on previously observed values.
  5. 5. 5 | P a g e 3. RESEARCH OBJECTIVES ➢ To analyse the trend of FPI during 2012-2015 and look for any visible pattern ➢ To look at preferred recipient of FPI – Debt or Equity ➢ To look at FPI among various major industries/sectors and change in them during the period ➢ To forecast the future inflow of FPI on the basis of past pattern ➢ Look for outliers and identify reasons for that 4. TOOLS Tool used in the study for time series analysis is – Exploratory analysis. Various techniques can be applied under this tool to analyse time series. The clearest way to examine a regular time series manually is with a line chart which we will use in this study. A time series is a sequence of measurements of the same variable collected over time. Most often, the measurements are made at regular time intervals
  6. 6. 6 | P a g e 5. ANALYSIS Figure 1 Source: SEBI -50000 -40000 -30000 -20000 -10000 0 10000 20000 30000 40000 50000 2012 2013 2014 2015 FPI inflow monthly 2012-2015 (INR Crores)
  7. 7. 7 | P a g e Monthly FPI/FII net flow from 2012-2015 (INR crores) Calendar Year 2012 Monthly FPI/FII Net Investments (Calendar Year - 2012) Calendar Year INR crores Equity Debt Total YEAR 2012 10357.7 15971 26328.7 February 25212 10015.7 35227.7 March 8381 -6588.5 1792.5 April -1109 -3787.7 -4896.7 May -347.3 3569.2 3221.9 June -501.3 1681.8 1180.5 July 10272.7 3391.5 13664.2 August 10803.9 264.8 11068.7 September 19261.3 622.5 19883.8 October 11364 7851.4 19215.5 November 9577.1 292.1 9869.2 December 25087.7 1704.2 26791.9 Total - 2012 128359.8 34988 163347.9
  8. 8. 8 | P a g e Calendar Year 2013 Monthly FPI/FII Net Investments (Calendar Year - 2013) Calendar Year INR crores Equity Debt Total YEAR 2013 22059 2947 25006 February 24439 4001 28440 March 9124 5795 14919 April 5414 5334 10748 May 22169 5969 28138 June -11027 -33135 -44162 July -6086 -12038 -18124 August -5922 -9773 -15695 September 13058 -5678 7379 October 15706 -13578 2128 November 8116 -5983 2133 December 16086 5290 21376 Total - 2013 113136 50849 62286
  9. 9. 9 | P a g e Calendar Year 2014 Monthly FPI/FII Net Investments (Calendar Year - 2014) Calendar Year INR crores Equity Debt Total YEAR 2014 714 12609 13323 February 1404 11337 12741 March 20077 11586 31663 April 9602 -9185 418 May 14006 19772 33778 June 13991 16715 30705 July 13110 22935 36046 August 5430 16704 22134 September 5103 15869 20972 October -1172 17903 16732 November 13753 11723 25476 December 1036 11188 12225 Total - 2014 97054 159156 256213
  10. 10. 10 | P a g e Calendar Year 2015 Figure 2 source: NSDL . Monthly FPI/FII Net Investments (Calendar Year - 2015) Calendar Year INR crores Equity Debt Total YEAR 2015 12919 20769 33688 February 11476 13088 24564 March 12078 8645 20723 April 11721 3612 15333 May -5768 -8504 -14272 June -3344 1737 -1608 July 5319 4 5323 August -16877 -647 -17524 September -6475 692 -5784 October 6650 15701 22350 November ** -5713 -2565 -8278 Total - 2015 21986 52532 74515
  11. 11. 11 | P a g e Debt or Equity in FPI: What investors prefer? Figure 3 source: NSDL Above graph shows proportion of debt and equity in FPI in every year. Figure 4 source: SEBI Above graph shows the trends in debt equity during the period measured every year. -100000 -50000 0 50000 100000 150000 200000 250000 300000 2012 2013 2014 2015 INRCRORES debt equity 0 50000 100000 150000 200000 250000 300000 2012 2013 2014 2015 INPCRORES DEBT - EQUITY TREND IN FPI debt equity
  12. 12. 12 | P a g e Flow of FPI Among various industries** FPI (INR CRORES) INDUSTRY Jan-12 Jan-13 Jan-14 Jan-15 Automobile 116 655 -96 391 Financial services 4441 2763 652 1649 Capital goods 2026 594 -271 1570 Food, Beverages and Tobacco 85 -51 -192 400 Oil & Gas -12 322 90 560 Pharma & biotech 194 915 11 1051 Software & services 756 568 1075 1100 Others 3299 3364 11801 26879 Total 10,905 9130 13,070 33,600 Figure 5 source: NSDL **These figures are the FPI inflow during January every year.
  13. 13. 13 | P a g e Investors prefer Financial services and capital goods Industry Figure 6 source: SEBI Automobile 1% finacial services 41% capital goods 18% food,beverages, tabaco 1% oil & gas 0% pharma & biotech 2% software & services 7% others 30% FPI in Jan 2012 Automobile 7% finacial services 30% capital goods 6% food,beverages, tabaco -1% oil & gas 4% pharm a & biotech 10% software & services 6% others 36% FPI in Jan 2013 -1% 5% -2% -1% 1% 0% 7% 83% FPI in Jan 2014 Automobile finacial services capital goods food,beverages,tabaco oil & gas pharma & biotech software & services others
  14. 14. 14 | P a g e FPI flow among various industry 2012-15 Figure 7 source: SEBI -1000 0 1000 2000 3000 4000 5000 Jan/12 Jan/13 Jan/14 Jan/15 Automobile finacial services capital goods food,beverages,tabaco oil & gas pharma & biotech software & services
  15. 15. 15 | P a g e 6. Finding and Recommendations ➢ Trend of FPI flow is quite volatile as interpreted from line chart in (Figure 1) - regular spikes visible which show no stable upward or downward moment in flow of FPI. Flow of FPI is positive mostly as there is inflow of FPI mostly during this period. ➢ One outlier visible, during may- June 2013 drastic outflow of FPI as there is outflow of INR 45000 crore as compared to inflow of INR 30000 crore in April 2013. Strong influence of adverse macro economic factors combined with some other factors resulted in such shock in FPI inflow. Reason for this outflow needs to be explored. ➢ Current trend of FPI is negative as there was outflow of INR 9000 crore. Reason for this could be tepid demand conditions in domestic economy which resulted in poor September quarter results of listed companies as well as week commodity prices, global slowdown and instability in china’s economy resulted in outflow of funds from emerging markets. ➢ Expectations of rate hike by FED reserve is also fuelling outflow of FPI from emerging markets including India. ➢ In 2012 and 2013 equity is preferred in 2013, FPI only in flowed in equity as debt saw outflow of FPI. Whereas in 2014 and 2015 there is reversal of trend as debt is more preferred for FPI as compared to equity(figure 2) Debt guarantees fixed and less risky return to investors. However equity is risky but provides better return. Inclination of trend in favour of debt instruments implicit that investors are not willing to take risk in Indian stock market as they do not find return from risk adjusted return attractive from equity instruments. (figure 3) ➢ In 2012 and 2013 Financial services which include banks and NBFCs got highest share of FPI 41% and 30% respectively as seen (in figure 6). However in 2014 share of financial services shrieked to mere 5%. Whereas sovereign included in others saw highest share if FPI of INR ➢ FPI received by each major industry during 2012-2015 could be seen in (figure 5) ➢ Trend of FPI in major industries can be seen in (figure 7). FPI inflow in financial services declined for 3 consecutive years. However some recovery can be seen in 2015. Trend in automobile sector is quite volatile. ➢ FPI in capital goods witnessed very steep decline till it saw outflow in 2014. However it recovered very sharply in 2015. ➢ FPI in food, beverages and tobacco is very low in 2012-13 and outflow in 2014. It saw steep incline in 2015. ➢ FPI trend in oil & gas, pharma & biotech is zig zag curve with regular incline and decline shocks.
  16. 16. 16 | P a g e 7. BIBLOGRAPHY 1. The Indian Equity Market's Recent History By Pete Raine http://marketrealist.com/2015/10/overview-last-5-years-foreign-portfolio-investment-india/ 2. Publication: The Economic Times Delhi; Date: Aug 25, 2008; Section: Political Theatre; Page: 3 Do you know the difference between FDI and FII? http://epaper.timesofindia.com/Repository/ml.asp?Ref=RVRELzIwMDgvMDgvMjUjQXIwMDMwMA== &Mode=HTML 3. Foreign Portfolio Investment, Stock Market and Economic Development: A Case Study of India Parthapratim Pal http://www.policyinnovations.org/ideas/policy_library/data/01408/_res/id=sa_File1/Partha_ACDC_Paper.p df 4. IMF working paper: portfolio flow into India-do fundamentals matters? https://www.imf.org/external/pubs/ft/wp/2003/wp0320.pdf 5. Friedman, Milton. "The interpolation of time series by related series." Journal of the American Statistical Association 57.300 (1962): 729-757. 6. Jump up^ Gandhi, Sorabh, Luca Foschini, and Subhash Suri. "Space-efficient online approximation of time series data: Streams, amnesia, and out-of-order." Data Engineering (ICDE), 2010 IEEE 26th International Conference on. IEEE, 2010. 7. Time series at Encyclopaedia of Mathematics: https://www.encyclopediaofmath.org/index.php/Main_Page 8. Overview of Time Series Characteristics: http://science.psu.edu/ 9. SEBI: http://www.sebi.gov.in/sebiweb/investment/statistics.jsp?s=fii 10. NDSL: https://www.fpi.nsdl.co.in/web/Reports/ReportsListing.aspx 11. Central depository services (India) limited: https://www.cdslindia.com/publications/FIIreports.html

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