The debt market is infused with ₹18,500 Cr by foreign portfolio investors

With a net injection of more than Rs 18,500 crore this month, Foreign Portfolio Investors (FPIs) have maintained their positive position on the nation’s debt markets, fueled by the impending addition of Indian government bonds to the JP Morgan Index.

This was the result of the largest monthly inflow in over six years, a net investment of over Rs 19,836 crore in January. Since June 2017, when they invested Rs 25,685 crore, this was the largest influx.

Since India was included to international bond indexes this year, inflows of Indian debt should continue to be consistent. Prior to the actual inclusion in June of this year, more front-loading is also anticipated. The long-term goal of expanding our undeveloped debt markets is also aligned with this, according to Kislay Upadhyay, smallcase manager and founder of Fidelfolio.

However, throughout the review period, foreign investors withdrew Rs 424 crore from equity. Prior to this, data from the depositories revealed that they had taken out a whopping Rs 25,743 crore in January.

The report shows that till February 23, FPIs invested a net total of Rs 18,589 crore in the debt markets this month. As a result, in 2024, FPI investments totaled more than Rs 38,426 crore. For the last several months, they have been pouring money into the debt markets.

significant increase in the debt market

In December, FPIs invested Rs 18,302 crore, in November, Rs 14,860 crore, and in October, Rs 6,381 crore. According to Bhuvan Rustagi, Co-Founder and COO of Per Annum and Lendbox, a key factor in the massive influx into the debt market is the company’s impending participation in JP Morgan EMBIGD in June 2024.

FPIs were drawn to the debt market by an alluring yield, steady macroeconomic indicators, and a generally stable currency. In September of last year, JP Morgan Chase & Co. said that starting in June of 2024, it would include Indian government bonds into its benchmark emerging market index.

It is expected that India would gain from this historic inclusion, which will bring in between USD 20 and $40 billion over the next 18 to 24 months. This influx is anticipated to strengthen the currency and increase the accessibility of Indian bonds to international investors, both of which would support the country’s economy.

FPI withdrawals from equity have totaled only Rs 424 crore so far this month, a significant decrease from Rs 25,744 crore in January. Despite favorable bond rates in the US, the market’s durability is keeping FPIs from selling aggressively, according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

2.4 lakh crore is invested in the stock market.

In a similar vein, Bharat Dhawan, Managing Partner of Mazars in India, said that the Indian market continues to draw attention from across the world, indicating both the economy’s resiliency and the confidence that foreign investors have in its trajectory for development.

According to Upadhyay of smallcase, the banking industry reported lower-than-expected performance in terms of net interest margins as a consequence of competition in deposit mobilization, making the FPI sell-off noteworthy in that regard.

The overall foreign portfolio investment (FFI) flows for 2023 were Rs 68,663 crore in the debt markets and Rs 1.71 lakh crore in the equity markets. They contributed a total of Rs 2.4 lakh crore to the capital market.

The inflow into Indian stocks occurred after the worst net outflow, amounting to Rs 1.21 lakh crore, in 2022 as a result of the global central banks’ aggressive rate rises. FPIs had made investments in the previous three years prior to the outflow.