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State of the Economy 2020-21: A Macro View 31

Figure 33: Composition of India’s Current Account Balance

Source: RBI

1.37 India remained a preferred investment destination in FY 2020-21. FDI poured in amidst
global asset shifts towards equities and prospects of quicker recovery in emerging economies.
Subsequent to an unrivalled global portfolio investor selloff in March 2020, surges of FPI
flows were witnessed June onwards marking a renewed appetite for risky assets and yield, and
weakening of US dollar amid global monetary easing and fiscal stimulus packages. Net FPI

inflows recorded an all-time monthly high of US$ 9.8 billion in November 2020. During April-
December 2020, equities witnessed inflow of at USD 30.0 billion, five times its previous year
value - India was the only country among emerging markets to receive equity FII inflows in
2020 (Figure 34). As a result of these inflows, buoyant Sensex and NIFTY resulted in India’s
market-capitalisation to Gross Domestic Product (GDP) ratio crossing 100 per cent for the first
time since October 2010. While stock markets value the potential future growth, these elevated

levels still raise concerns on the disconnect between the financial markets and real sector.

Figure 34: Equity Inflows from FIIs into India in 2020

Source: Institute of International Finance.