Foreign Portfolio Investors (FPIs) continued their bullish stance on the country’s debt markets with a net infusion of over Rs 15,000 crore so far this month, on the back of inclusion of Indian government bonds in the JP Morgan Index along with relatively stable economy. This followed a net investment of Rs 19,836 crore in January, making it the highest monthly inflow in more than six years. This was the highest inflow since June 2017, when they infused Rs 25,685 crore.
On the other hand, foreign investors pulled out more than Rs 3,000 crore from equities during the period under review. Before this, they withdrew a massive Rs 25,743 crore in January, data with the depositories showed. “The main trigger for this divergent trend in equity and debt is the high valuation in the Indian equity market and the rising bond yields in the US,” V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.
Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India, attributed the outflow from equities to the uncertainty surrounding the interest rate environment, both domestically as well as globally. According to the data, FPIs made a net investment of Rs 15,093 crore in the debt markets in this month (till February 9).
With this, the total investment by FPIs reached over Rs 34,930 crore in 2024. They have been injecting money in the debt markets for the past few months.
FPIs infused Rs 18,302 crore in the debt market in December, Rs 14,860 crore in November, and Rs 6,381 crore in October. “The Indian debt markets witnessed a reversal in FPI flow trend last year after the announcement of inclusion of Indian government bonds in the JP Morgan Index. This was one of the major drivers for the robust flows from FPIs, along with relatively stable economy,” Srivastava said.
JP Morgan Chase & Co. in September last year announced that it will add Indian government bonds to its benchmark emerging market index from June 2024. This landmark inclusion is anticipated to benefit India by attracting around USD 20-40 billion in the subsequent 18 to 24 months.
This inflow is expected to make Indian bonds more accessible to foreign investors and potentially strengthen the rupee, thereby bolstering the economy, he added. Overall, the total FPI flows in 2023 stood at Rs 1.71 lakh crore in equities and Rs 68,663 crore in the debt markets.
Together, they infused Rs 2.4 lakh crore into the capital market. The flow in Indian equities came following a worst net outflow of Rs 1.21 lakh crore in 2022 on aggressive rate hikes by the central banks globally. Before the outflow, FPIs invested money in the last three years.
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