Foreign Portfolio Investment (FPI)

BSE Sensex fell more than 1.9% on February 28, marking a continued decline since February 4.

• Key Reasons behind the Market Fall: High stock valuations and economic slowdown led to a foreign portfolio investor (FPI) outflow. Not due to trade tariffs imposed by the Donald Trump administration.
• About: Foreign Portfolio Investment (FPI) allows investors to invest in overseas economies through securities and financial assets.

o Includes stocks, American Depositary Receipts (ADRs), bonds, debt instruments, and mutual funds or ETFs investing abroad.

o Part of a country’s capital account and recorded in its Balance of Payments (BOP).

o Highly liquid, but subject to market volatility.

• About Foreign Portfolio Investors (FPIs): FPIs pulling out funds is more linked to investor mood swings than fundamental economic issues.

o Small- and mid-cap markets were overvalued, leading to a natural correction.

o Multinational company (MNC) promoters have also exited due to high valuation levels.