Foreign Portfolio Investors (FPIs) have maintained their bullish stance on India’s debt markets, injecting a net amount of over Rs 18,500 crore so far this month. This surge is attributed to the upcoming inclusion of Indian government bonds in the JP Morgan Index. January witnessed a substantial net investment of over Rs 19,836 crore, marking the highest monthly inflow in over six years, reminiscent of the peak in June 2017 when Rs 25,685 crore was infused.
Kislay Upadhyay, smallcase Manager & Founder Fidelfolio, noted, “The introduction of India in global bond indices this year is expected to drive steady inflows into Indian debt markets. Further front-loading before actual inclusion in June this year is also anticipated, aligning with the long-term goal of deepening our underdeveloped debt markets.”
Conversely, foreign investors withdrew Rs 424 crore from equities during the review period, following a significant pullout of Rs 25,743 crore in January.
Data reveals that FPIs have made a net investment of Rs 18,589 crore in the debt markets this month (till February 23), amounting to over Rs 38,426 crore in 2024. This consistent trend has been observed over the past few months, with FPIs injecting Rs 18,302 crore in December, Rs 14,860 crore in November, and Rs 6,381 crore in October. The upcoming inclusion in JP Morgan EMBIGD in June 2024 is a key driver for the substantial inflow into the debt market, according to Bhuvan Rustagi, Co-Founder and COO, Per Annum and Lendbox. Additionally, factors such as attractive yield, stable macroeconomic indicators, and a relatively stable rupee have further attracted FPIs to the debt market.
The inclusion of Indian government bonds in the JP Morgan Index, announced by JP Morgan Chase & Co. in September last year, is anticipated to draw around USD 20-40 billion in the subsequent 18 to 24 months, benefiting India’s economy and potentially strengthening the rupee.
On the equities front, FPIs have withdrawn Rs 424 crore so far this month, a notable decrease from Rs 25,744 crore in January. Despite attractive bond yields in the US, the resilience of the market has deterred FPIs from aggressive selling, according to V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Similarly, Bharat Dhawan, Managing Partner at Mazars in India, highlighted the enduring international interest in the Indian market, reflecting confidence in its economic resilience and growth trajectory.
Regarding sectors, FPI sell-off has been notable in the banking sector, attributed to lower-than-expected results in net interest margins due to competition in deposit mobilization, as noted by smallcase’s Upadhyay.
In summary, the total FPI flows for 2023 amounted to Rs 1.71 lakh crore in equities and Rs 68,663 crore in the debt markets, contributing to a total infusion of Rs 2.4 lakh crore into the capital market. This followed a significant net outflow of Rs 1.21 lakh crore in 2022 due to aggressive rate hikes by central banks globally.
