Foreign Portfolio Investors Boost Indian Debt Market

Foreign Portfolio Investors (FPIs) have significantly increased their investment in the Indian debt market, reaching a two-year high with an infusion of approximately Rs 12,400 crore in November. This surge in inflows is attributed to the attractive yields offered by India’s debt instruments, particularly after the inclusion of Indian G-Sec in the JP Morgan Government Bond Index Emerging Markets.

Rising Interest in Indian Debt

Market experts note that FPIs have displayed a bullish sentiment towards Indian debt throughout 2023, with consistent investments except for a brief withdrawal in March. Data from depositories indicates that the net investment by FPIs in debt has reached Rs 47,900 crore thus far in the calendar year.

Noteworthy Inflows in November

In November alone, FPIs injected a net amount of Rs 12,400 crore into the debt market, marking the highest inflow since September 2021. This follows a positive trend as FPIs had invested Rs 6,382 crore in October, showcasing sustained interest in Indian debt securities.

Attractive Investment Landscape

The attractiveness of Indian debt stems from its higher yields compared to other emerging markets, coupled with a relatively favorable risk-return profile when compared to debt in developed markets. Bhuvan Rustagi, COO and Co-Founder of Per Annum and Lendbox, emphasizes the appeal of Indian debt instruments in the current investment climate.

Equities and Market Dynamics

Aside from debt, FPIs also contributed a net amount of Rs 378 crore to the equity markets during the review period. This positive sentiment contrasts with the significant selling witnessed in equities during October and September, indicating a nuanced approach by FPIs based on market dynamics.

Global Factors Influencing Investment

Market confidence was bolstered by better-than-expected inflation trends in the US, leading to speculation that the Federal Reserve might pause rate hikes. Consequently, US bond yields witnessed a decline, prompting FPIs to reassess their investment strategies and potentially reducing selling pressures.

Overall Investment Outlook

Despite periodic fluctuations, the cumulative investment trend for 2023 remains robust, with FPIs injecting a substantial Rs 96,340 crore into Indian markets, underscoring the continued attractiveness of India as an investment destination for foreign investors.