foreign portfolio investment flow to india: trend analysis (2012-2015)
TRANSCRIPT
CDE
November 2015
FOREIGN PORTFOLIO INVESTMENT FLOW TO INDIA:
TREND ANALYSIS
2012-2015
Aayush Makkar
15IB303
Global Business Environment
Submitted to:-
Prof. Ritu Srivastava
Birla institute of management technology,
Greater Noida
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 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.
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.
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.
5. ANALYSIS
Figure 1 Source:SEBI
-50000
-40000
-30000
-20000
-10000
0
10000
20000
30000
40000
50000
INR
cr
ore
s
2012 2013 2014 2015
FPI inflow monthly 2012-2015
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
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
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 1591
56 256213
figure 2 source: NSDL
Above graph shows the flow of net FPI every month from 2012-2015.
Figure 3 source: NSDL
Above graph shows proportion of debt and equity in FPI in every year.
-100000
-50000
0
50000
100000
150000
200000
250000
300000
2012 2013 2014 2015
INR
CR
OR
ES
debt
equity
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 5253
2 74515
Figure 4 source: SEBI
Above graph shows the trends in debt equity during the period measured every year.
Flow of FPI Among various industries**
FPI IN INR CRORE
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,tabaco 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.
0
50000
100000
150000
200000
250000
300000
2012 2013 2014 2015
INP
CR
OR
ES
DEBT - EQUITY TREND IN FPI
debt
equity
Share of each industry in each year
Figure 6 source: SEBI
Automobile
1%
finacial services
41%
capital goods
18%
food,beverages,
tabaco
1% oil & gas
0%
pharm
a &
biotech
2%
software &
services
7%
others
30%
FPI in jan2012
Automobile
7%
finacial services
30%
capital goods
6%
food,beverages,
tabaco
-1%
oil & gas
4%
pharma &
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
Figure 7 source: SEBI
-1000
0
1000
2000
3000
4000
5000
Jän.12 Jän.13 Jän.14 Jän.15
FPI flow among various industry 2012-15
Automobile finacial services capital goods food,beverages,tabaco
oil & gas pharma & biotech software & services
6. Finding and Recommendations
Trend of FPI flow is quite volatile which can be interpreted from line chart (Figure 1), there
are regular spikes visible which show that there is no stable upward or downward moment
in flow of FPI. Flow of FPI is positive most of the times which means there is inflow of FPI
mostly during this period.
There is one outlier visible, during may- june 2013 there is drastic outflow of FPI as there is
outflow of INR 45000 crore as compared to inflow of INR 30000 crore in april 2013. There
would be strong influence of adverse macro economic factors or some other factor which
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 for Filing 2013 FPI only inflowed 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 shrinked to mere 5%. Whereas sovereign included in others saw highest share if
FPi of INR
Amount of 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.
FPI in software and services witness different and unique pattern of inflow.
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.pdf
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