FPIs keep faith in equities, but Indians hunt for gold

New Delhi: Foreign investors have invested about USD 124 billion in Indian equities over 2008-17 and own large stakes in the country's best companies, says a report. In stark contrast, Indians have "consumed" around USD 300 billion worth of gold over the same period.

"The next decade will perhaps decide the winner, but we note that foreigners own large stakes in India's best companies," said Kotak Institutional Equities in a note. Foreign portfolio investors (FPIs) own a combined more than 50 per cent in five of India's top seven banks and financial institutions.

"It seems that foreigners have more faith in India's economy (banks are perhaps the most leveraged plays on the same) than Indians," the report said.

Large gold imports reflect low confidence historically among Indians in government policies and the sharp rise in gold imports up to 2012-13 reflected the Indian citizens' concerns about high inflation.

The report further said India's inflation management policy achieved remarkable success, and this in turn should reduce gold's function as a "store of value".

According to the report, of the total USD 124 billion stock investment over 2008-17, FPIs put in USD 96 billion in 2010-14. Moreover, a bulk of FPI inflows into India by this March-end in the current decade came especially in the years with high inflation.

According to the report, the value of FPI holding in the top 200 stocks by market capitalisation stood at around USD 130 billion as of March 31, 2007. The value of the same portfolio -- no change in ownership -- of stocks would have increased to about USD 279 billion as of March 31, 2017.

"We note that the current value of FPI holding in the top 200 stocks (BSE-200 Index stocks) is USD 368 billion," the report said, adding that an analysis of the top 25 holdings of the FPIs shows that the increase in foreign ownership in certain companies has resulted in superior returns.

Moreover, India's financial inclusion programme has attained "undeniable" success and should reduce the compulsion of citizens to own gold as they have access to bank accounts. Besides, a proper taxation policy on gold is expected to achieve the desired national goals, the report added.