Foreign institutional investors inject Rs 11,366 crore in debt market in August so far

Foreign investors' strong buying interest in the Indian debt market can be attributed to India's inclusion in JP Morgan's Emerging Market government bond indices in June this year.

According to data with the depositories, Foreign Portfolio Investors (FPIs) injected Rs 11,366 crore in the debt market this month (till August 24).

This inflow came following a net investment of Rs 22,363 crore into the Indian debt market in July, Rs 14,955 crore in June and Rs 8,760 crore in May.

Before that, they pulled out Rs 10,949 crore in April.

With the latest flow, FPIs net investment in debt has reached Rs 1.02 lakh crore in 2024 so far.

Market analysts said that ever since the announcement of India's inclusion came in October 2023 year, FPIs have been front-loading their investments in Indian debt markets in anticipation of the inclusion in global bond indices.

Even after the inclusion, their inflows have continued to remain robust.

On the other hand, FPIs pulled out over Rs 16,305 crore from equities so far this month, due to unwinding of the yen carry trade, recession fears in the US and ongoing geopolitical conflicts.

Himanshu Srivastava, Associate Director, Manager Research, Morningstar Investment Research India, said the post-budget announcement of an increase in capital gains tax on equity investments has largely fueled this selling spree.

In addition, FPIs have been cautious due to the high valuations of Indian stocks, coupled with global economic concerns such as rising recession fears in the US amid weak jobs data, uncertainty over the timing of interest rate cuts, and the unwinding of yen carry trade, he added.

Overall, India remains in a favourable position, attracting long-term investments from FPIs.

"Amidst a global slowdown, geo-political crisis in the middle east and neighbouring countries, India still stands at a sweet spot compelling the foreign fraternity to take a bet for a long term investment horizon," Manoj Purohit, Partner & Leader, Financial Services Tax, Tax & Regulatory Services, BDO India, said.

In terms of sectors, FPIs were big sellers in financials in India in the first fortnight of August.

Vipul Bhowar, Director Listed Investments, Waterfield Advisors, said that FPIs are selling banking shares due to concerns over slow deposit growth.

"There are also challenges in Q1FY25 for banks with shrinking margins, deteriorating asset quality, and rising provisions, especially in credit cards, personal loans, and agriculture portfolios," he said.

Besides, selling was witnessed in many other sectors including metals on fears that economic slowdown in US and China will keep metal prices soft, V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

Conversely, foreign investors were buyers in telecom and health care where the growth and earnings prospects are safe and bright, he added.