Foreign Portfolio Investors (FPIs) have reaffirmed their confidence in India’s debt markets, injecting over Rs 15,000 crore in February alone. This significant inflow comes on the heels of the inclusion of Indian government bonds in the prestigious JP Morgan Index and amidst a backdrop of relative economic stability.
Following a remarkable net investment of Rs 19,836 crore in January, marking the highest monthly inflow in over six years, FPIs continue to demonstrate their positive sentiment towards Indian debt markets. This surge in investment contrasts with the withdrawal of more than Rs 3,000 crore from equities during the same period, underscoring a divergent trend in investor behavior.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, attributes this divergent trend to the high valuation in the Indian equity market and the rising bond yields in the US, factors that have prompted investors to reallocate their capital.
Himanshu Srivastava, Associate Director – Manager Research at Morningstar Investment Research India, identifies uncertainty surrounding the interest rate environment, both domestically and globally, as a key driver behind the outflow from equities.
The latest data reveals that FPIs have made a net investment of Rs 15,093 crore in the debt markets in February, bringing the total investment for the year to over Rs 34,930 crore. This sustained inflow underscores the attractiveness of Indian debt securities to foreign investors.
The reversal in FPI flow trend last year, particularly in the debt markets, can be attributed to the announcement of the inclusion of Indian government bonds in the JP Morgan Index. This landmark decision by JP Morgan Chase & Co., slated to take effect from June 2024, is expected to attract significant foreign capital inflows, estimated at around USD 20-40 billion over the subsequent 18 to 24 months. Such inflows are anticipated to enhance accessibility to Indian bonds for foreign investors and potentially strengthen the Indian rupee, thereby bolstering the economy.
In 2023, FPI flows in equities totaled Rs 1.71 lakh crore, while investments in the debt markets amounted to Rs 68,663 crore, collectively infusing Rs 2.4 lakh crore into the Indian capital market. This positive trajectory follows a challenging period in 2022, characterized by a significant net outflow of Rs 1.21 lakh crore from equities due to aggressive rate hikes by central banks globally.
As FPIs continue to demonstrate confidence in India’s debt markets, the country stands poised to attract further foreign investment, fostering economic growth and stability in the long run.
