FPI inflows in debt at 6-yr high

New Delhi: After turning net sellers in the past two months, FPIs again made a comeback in the Indian stock markets in November and pumped in Rs9,000 crore amid fall in US treasury bond yields and the resilience of the domestic market.

Additionally, Foreign Portfolio Investors (FPIs) made a net investment of Rs14,860 crore in the debt market last month, making it the highest level in six years, data with the depositories showed. Going forward, FPI response will be crucially determined by the market trend, which, in turn, will be influenced by the state election results, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

If the state election results turn out to be favorable for the ruling dispensation, the market will stage a rally, and overseas investors are unlikely to miss that rally by big selling, he added. According to the data, FPIs made a net investment of Rs9,000 crore in Indian equities in November. This came after FPIs dumped Indian equities worth Rs24,548 crore in October and Rs14,767 crore in September. Before the outflow, FPIs were incessantly buying Indian equities in the last six months from March to August and brought in Rs1.74 lakh crore during the period. The latest inflow can be attributed to fluctuations in the US Treasury yields and crude oil prices. Last month, the market witnessed the remarkable listing of two IPOs — IREDA and Tata Tech — potentially indicating a positive trend for foreign investors, Bharat Dhawan, Managing Partner, Mazars in India, said.

“While the decline in US treasury bond yields could have prompted FPIs to turn their focus back to the Indian market for better returns, listing of IPOs would have also bought foreign investors back,” said Himanshu Srivastava, associate director (manager research) at Morningstar Investment Research India Private Ltd.

Additionally, the US Fed in its policy meeting last month agreed to proceed carefully and only raise interest rates if progress in controlling inflation faltered, but it did not provide any indication concerning the timeline for rate cuts. However, low chances of further rate hikes could have also boosted market sentiments leading foreign investors to take on some risk, Also, a fall in crude prices also provided positive support, Srivastava said.

Overall, the cumulative trend for 2023 remains healthy, with FPIs pouring in Rs1.15 lakh crore so far this calendar year. With regards to bonds, the debt market attracted Rs14,860 crore in November, after receiving Rs6,381 crore in October, data showed. This was the highest inflow since October 2017, when they had poured Rs16,063 crore. The inclusion of Indian G-Sec in the JP Morgan Government Bond Index Emerging Markets has spurred foreign fund participation in the Indian bond markets. So far this year, overseas investors have net invested Rs50,270 crore in the Indian debt market. In terms of sectors, FPIs might buy into financials where the valuations are fair, Geojit’s Vijayakumar said.