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NEW DELHI: Exits by private equity and venture capitalist firms through initial public offers (IPOs) are likely to result in higher gross foreign direct investment (FDI) outflows in the ongoing financial year, said Kotak Institutional Equities in a note.

“We expect the preponderance of exits by PE and VC funds through OFS in forthcoming and recent IPOs to result in high gross FDI outflows for overseas entities in FY2022 too,” it said.

Kotak noted that India saw strong gross FDI inflows in FY21, but not so on a net basis. This was because of a sharp jump in gross FDI outflow at $27 billion for the year, up from $18.4 billion in FY20. It impacted the net numbers as gross FDI inflow for FY21 rose at a slower pace to $82 billion in FY21 from $74.4 billion in FY20.

In the first three months of FY22, India witnessed gross foreign direct investment (FDI) inflows of $16.6 billion and gross outflows of $5.2 billion.

Kotak said India is seeing large FDI investments by PE and VC funds but also exit by such funds through IPOs. Any purchase by FPIs in the IPO market is captured in FPI flows and the financial year so far has not been very exciting “despite the general market bullishness and a spate of IPOs,” it said.
“It would be interesting to see net FDI figures for FY2022. FDI data for FY21 was mixed and net FDI was only marginally higher than FY2020’s. This was despite gross FDI rising sharply due to large PE and VC investments in RIL’s subsidiaries,” it said.

Exits by PE investors in IPOs may increase gross FDI outflows in FY22

By ariox