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MASSIVE SPIKE IN FOREIGN FLOWS INTO MARKET

Focus: GS-III Indian Economy

Why in news?

Within the first week of June 2020, the quantum of foreign flows in the equity market has surpassed that of any other month in 2020.

The cumulative foreign flows in equities this year, however, is still negative, since March and April 2020 saw huge outflows.

Foreign portfolio investors (FPIs)

  • Foreign portfolio investment (FPI) consists of securities and other financial assets held by investors in another country.
  • In economics, foreign portfolio investment is the entry of funds into a country where foreigners deposit money in a country’s bank or make purchases in the country’s stock and bond markets, sometimes for speculation.
  • It does not provide the investor with direct ownership of a company’s assets and is relatively liquid depending on the volatility of the market.
  • Along with foreign direct investment (FDI), FPI is one of the common ways to invest in an overseas economy. FDI and FPI are both important sources of funding for most economies.
  • In India there has been a net FPI outflow in the recent past due to strengthening of advanced economies and taxes imposed by some protectionist countries.

-Source: The Hindu

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