Insights on Rising Foreign Portfolio Investment in Indian Equity Market

Foreign Portfolio Investment on the Rise in Indian Equity Market

In the wake of the recent general election outcome in India , institutional investors from the US and Japan are showing increased interest in Indian equities . Following the re - election of the Modi - led NDA government for a third term , these investors are optimistic about the continuity in policies . According to NSDL data , the combined weight of US and Japan - based funds in the total equity exposure of Foreign Portfolio Investors ( FPIs ) in India has reached a record high of 45.1 % as of June 2024 , compared to the five - year average of 41.4%.

Regional Interest Rate Contrasts Influence Investment Decisions

Despite both US and Japanese funds focusing on the Indian market , their regional interest rate environments differ significantly . While the US is expected to see interest rate cuts this year , the Bank of Japan raised interest rates for the first time in 17 years in March . This divergence in interest rate policies has led investors to shift their focus towards the earnings growth potential in India , rather than relying on interest rate differentials between developed nations and the Indian market for investment opportunities.

The equity Assets Under Management ( AUM ) of US - based funds in India have reached a record high of 30.2 lakh crore ( 61 billion ) , equivalent to 70 % of the total equity value of India 's domestic mutual funds . Japanese funds have also seen a significant increase in AUM , rising by 70 % to 2.1 lakh crore ( 5 billion ) in June . Overall , FPI equity AUM in India grew by 39 % year - on - year to 71.4 lakh crore ( 56 billion ) , representing nearly 17 % of India 's total market capitalization.

Japanese Government Pension Funds Among Top Investors in Indian Companies

Notably , Japanese government pension funds are among the largest investors in key Indian companies such as Reliance Industries , Bharti Airtel , Larsen & Toubro , and TCS . These funds hold stakes in 162 Indian companies , accounting for 1.8 % of the total foreign equity holdings in India , which amounts to 78 billion . This trend highlights the growing confidence of international investors in the Indian equity market and its prospects for sustained growth in the future.