Foreign portfolio investments into India have witnessed a significant reshuffling in the pecking order among regions. This transformation is attributed to various factors, including regulatory changes, geopolitical events, and strategic alliances.
Significant Changes in India’s FPI Landscape
Luxembourg’s Ascendancy
- Luxembourg has become the third-largest region for FPIs in India, surpassing Mauritius, with its Assets Under Custody (AUC) growing by 30% to ₹4.85 lakh crore.
- Globally, its equity assets are now second only to the United States.
- The surge is linked to strengthened India-Europe ties, resulting in three financial agreements.
- Luxembourg hosts over 1,400 FPI accounts out of 3,000 in Europe (excluding the UK).
- Collaborations, notably with GIFT City, have further strengthened financial ties between India and Luxembourg.
France’s Notable Gains
- France has entered the top ten FPIs with a remarkable 74% growth in AUC, reaching ₹1.88 lakh crore.
- This ascent is fueled by the favourable tax provisions under the Double Taxation Avoidance Agreement (DTAA) between India and France.
Other Players in the Reshuffled Landscape
- Ireland and Norway have climbed one position each, now ranking 5th and 7th among FPI jurisdictions.
- Ireland’s attractiveness stems from its tax efficiencies and global reach, offering regulated funds exemption from Irish tax on income and gains.
- Also, despite a 19% year-on-year growth in AUC, Canada dropped one place in the rankings. The impact of the diplomatic tensions between India and Canada on investments remains uncertain.
Foreign Portfolio Investment
- FPI refers to investments made by foreign individuals, corporations, and institutions in the financial assets of India, such as stocks, bonds, and mutual funds.
- These investments are mainly for the purpose of short-term gains and portfolio diversification, unlike Foreign Direct Investment (FDI) which involves long-term ownership of assets.
Benefits
- Capital Inflow: FPI results in the inflow of foreign capital into the Indian financial markets, which contributes to increased liquidity and capital availability.
- Boost to Stock Market: Increased FPI can positively impact the stock market, leading to higher valuations and increased investor confidence.
- Technology Transfer: FPI often involves investments in technology-oriented sectors, leading to induced technology transfer and advancements in various industries.
- Global Integration: FPI promotes global integration of financial markets, allowing Indian markets to align with global trends and attract foreign investors.