Foreign investors infuse in Rs 11,366 crore in debt market in August

Foreign portfolio investors (FPIs) invested Rs 11,366 crore in debt market in August, taking the net investment in this segment to over Rs 1 lakh crore in 2024. The surge in investment is largely attributed to India's inclusion in JP Morgan's Emerging Market government bond indices earlier this year.

Figures from depositories indicated that FPIs have been steadily investing in Indian debt and net inflows witnessed a significant inflow of Rs 22,363 crore in July, Rs 14,955 crore in June, and Rs 8,760 crore in May. These inflows were preceded by a withdrawal of Rs 10,949 crore in April.

The latest figures of investment have taken FPIs' net contribution to Indian debt markets to a steep Rs 1.02 lakh crore so far this year. Experts said that the heavy inflows could be due to front-loading by FPIs in view of India's likely inclusion in global bond indices, an announcement made in October 2023. Even after the official induction into the indices, the pace of FPI investments has shown no signs of losing steam.

On the other hand, FPIs have sold more than Rs 16,305 crore worth of equities in the country so far this month, largely due to unwinding of the yen carry trade, fear of impending recession in the US, and ongoing geopolitical tensions. The increase in capital gains tax on equity investments in the post-budget also played its part in the selling spree.

According to Himanshu Srivastava, Associate Director, Morningstar Investment Research India, "High valuations of Indian stocks and uncertainties revolving around the global economic scenario have turned FPIs cautious toward equity investments." Manoj Purohit, Partner & Leader, Financial Services Tax at BDO India, added that despite challenges globally, India still remains very attractive for long-term investments.

Sector-wise, in the first half of August, FPIs had turned bearish about financials, selling banking shares on apprehensions relating to slow deposit growth and challenges that banks are likely to face in Q1FY25. Selling pressure has also been seen in sectors like metals, driven by fears of an economic slowdown in the US and China.

On the other hand, interest was evinced by FPIs in sectors such as telecom and healthcare, where growth and earnings prospects look more secure.

(With PTI inputs)