Foreign portfolio investment FPIs Exhibit Confidence in Indian Debt, Pouring ₹16,559 Crore in February Despite Equity Sell-off

Introduction:

Foreign Portfolio Investors (FPIs) continue to show strong support for Indian debt markets, injecting a substantial ₹16,559 crore into sovereign debt securities during the first half of February.

Despite being net sellers in the equity segment with a value of ₹3,776 crore, FPIs display optimism driven by positive factors such as the interim budget’s fiscal consolidation announcement and India’s upcoming inclusion in global bond indices.

Better-than-Expected Fiscal Consolidation:

The recently announced interim budget on February 1 exceeded expectations with its fiscal consolidation plans. This unexpected positive development further fueled FPI confidence, contributing to their increased activity in the Indian debt market.

Global Bond Indices Inclusion Boost:

FPIs maintain a bullish outlook, largely influenced by India’s scheduled addition to global bond indices starting from June 2024.

This positive sentiment adds to the ongoing trend of briskly buying sovereign debt, aligning with their investment strategy in anticipation of significant inflows.

Year-to-Date Investment Overview:

Cumulatively, FPIs recorded net debt inflows of ₹19,837 crore in January 2024. Adding the February inflows, their total investments in the Indian debt market for the year so far stand at an impressive ₹36,396 crore.

However, it’s noteworthy that FPIs have a net selling position in equities, amounting to ₹29,520 crore year-to-date.

Upcoming Bond Inclusions and Market Impact:

The anticipation of India’s inclusion in global bond indices has been a key driver for FPIs’ active participation in the Indian debt market since October of the previous year.

The potential inclusion in indices like J P Morgan’s Government Market Index-EM and Bloomberg Emerging Market Local Currency Index is expected to attract substantial inflows, offering a positive outlook for the Indian bond market.

Expert Insights and Market Trends:

Industry experts, including Jitendra Gohil and V K Vijayakumar, highlight the factors contributing to FPIs’ interest in the debt market. Gohil emphasizes better-than-expected fiscal consolidation, stability of the INR, and India’s bond inclusion in global indices as key attractions for foreign capital.

Vijayakumar notes the sustained FPI buying in debt, expecting this trend to continue, while acknowledging profit booking and the impact of elevated US bond yields on equity markets.

Conclusion: Foreign portfolio investment 

Despite some profit booking in the equity market and global uncertainties affecting FPIs’ equity positions, their continued confidence in Indian debt markets remains robust.

The positive trajectory is fueled by fiscal policies, global index inclusions, and India’s economic stability, contributing to a favorable investment landscape in the country’s debt securities.

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