FPIs infuse Rs 18,500 crore in debt market in February

Foreign Portfolio Investors (FPIs) continued their bullish stance on the country's debt markets with a net infusion of over Rs 18,500 crore so far this month, driven by upcoming inclusion of Indian government bonds in the JP Morgan Index.

This came following a net investment of over 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.

"With introduction of India in global bond indices this year, Indian debt inflows should get steady flows going ahead. Also, further front-loading before actual inclusion in June this year is also expected. This is also in line with long-term aim to deepen our underdeveloped debt-markets," Kislay Upadhyay, smallcase Manager & Founder Fidelfolio, said.

On the other hand, foreign investors pulled out Rs 424 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.

According to the data, FPIs made a net investment of Rs 18,589 crore in the debt markets this month (till February 23 ). With this, the total investment by FPIs reached over Rs 38,426 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 upcoming inclusion in JP Morgan EMBIGD in June 2024 is a major driver for the huge inflow in the debt market, Bhuvan Rustagi, Co-Founder and COO, Per Annum and Lendbox, said.

Additionally, attractive yield, stable macroeconomic indicators and relatively stable rupee too attracted FPIs towards the debt market. 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.

On equities front, FPIs pulled out Rs 424 crore so far this month, sharply down from Rs 25,744 crore in January. The resilience of the market is preventing FPIs from selling aggressively despite attractive bond yields in the US, V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

Making similar statement, Bharat Dhawan, Managing Partner at Mazars in India, said the Indian market continues to captivate international interest, signifying not only the resilience of the economy but also the trust global investors place in its growth trajectory.

In terms of sectors, FPI sell-off was significant in the banking sector, as it saw lower-than-expected results in terms of net interest margins due to competition in deposit mobilization, smallcase's Upadhyay said.

Overall, the total FPI flows for 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.