Foreign investors have injected Rs 11,366 crore into the Indian debt market so far this month, pushing the total net inflow in the debt segment to over Rs 1 lakh crore in 2024
The increased interest from foreign investors is largely attributed to India’s inclusion in JP Morgan’s Emerging Market Government Bond indices announced in June this year.
According to depository data, Foreign Portfolio Investors (FPIs) poured Rs 11,366 crore into the debt market in August (as of August 24). This follows net investments of Rs 22,363 crore in July, Rs 14,955 crore in June, and Rs 8,760 crore in May. However, in April, FPIs withdrew Rs 10,949 crore from the debt market.
With these recent inflows, FPIs’ total net investment in Indian debt markets for 2024 has reached Rs 1.02 lakh crore.
Analysts believe that since the announcement of India’s inclusion in global bond indices in October 2023, FPIs have been steadily increasing their investments in Indian debt markets, anticipating higher returns. Even after the inclusion, their inflows have remained robust.
Conversely, FPIs have pulled out over Rs 16,305 crore from Indian equities this month due to concerns like the unwinding of the yen carry trade, recession fears in the US, and ongoing geopolitical tensions.
Himanshu Srivastava, Associate Director at Morningstar Investment Research India, noted that the post-budget announcement regarding increased capital gains tax on equity investments has driven much of this selling. Additionally, FPIs are cautious due to the high valuations of Indian stocks, alongside global concerns such as US recession fears and uncertain interest rate cuts.
Despite these challenges, India continues to attract long-term investments from FPIs. According to Manoj Purohit, Partner & Leader at BDO India, “Amidst a global slowdown and geopolitical crises in the Middle East and neighboring regions, India remains an attractive long-term investment destination for foreign investors.”
In terms of sectors, FPIs were significant sellers in financial stocks during the first half of August. According to Vipul Bhowar, Director of Listed Investments at Waterfield Advisors, FPIs are offloading banking shares due to worries over slow deposit growth. Banks are also facing challenges in Q1FY25 with shrinking margins, deteriorating asset quality, and rising provisions, particularly in credit cards, personal loans, and agricultural portfolios.
Additionally, there has been selling in other sectors, including metals, as economic slowdowns in the US and China have led to concerns over weak metal prices. On the flip side, foreign investors were buyers in telecom and healthcare sectors, where growth and earnings prospects remain strong and stable, according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
(With inputs from agency)
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