Foreign investors have poured ₹11,366 crore into India’s debt market so far in August, pushing the total inflow for 2024 to over ₹1 lakh crore. This surge in investment from Foreign Portfolio Investors (FPIs) is largely driven by India’s inclusion in JP Morgan’s Emerging Market government bond indices in June this year.
Consistent Investments
FPIs have shown consistent interest in Indian debt markets over the past few months, with significant investments of ₹22,363 crore in July, ₹14,955 crore in June, and ₹8,760 crore in May. However, April saw a withdrawal of ₹10,949 crore from the debt market.
Impact of Global Bond Index Inclusion
The announcement of India’s inclusion in global bond indices last October spurred FPIs to invest heavily in anticipation of this event. Even after the actual inclusion, these investments have remained robust, reflecting strong confidence in India’s debt market.
Equity Market Sell-Off
In contrast, FPIs have pulled out over ₹16,305 crore from the Indian equity market this month. This sell-off is attributed to various factors, including the unwinding of the yen carry trade, fears of a recession in the US, and ongoing geopolitical tensions.
Budget Announcement Fuels Equity Selling
Himanshu Srivastava, Associate Director at Morningstar Investment Research India, pointed out that the recent budget’s increase in capital gains tax on equity investments has significantly contributed to the selling trend. FPIs are also cautious about high valuations of Indian stocks and broader global economic concerns.
India Remains an Attractive Investment Destination
Despite the challenges, India continues to attract long-term investments from FPIs. According to Manoj Purohit, a partner at BDO India, India is in a favorable position, even amid a global slowdown and geopolitical crises, making it a compelling choice for foreign investors.
Sector-Specific Trends
FPIs were notable sellers in the financial sector during the first half of August, with concerns about slow deposit growth in banks. Vipul Bhowar from Waterfield Advisors highlighted that banks are dealing with shrinking margins, deteriorating asset quality, and rising provisions, especially in credit cards, personal loans, and agriculture portfolios. FPIs also offloaded stocks in the metals sector, fearing that economic slowdowns in the US and China would suppress metal prices.
Bright Spots
On the other hand, FPIs were buyers in the telecom and healthcare sectors, where growth and earnings prospects are seen as more stable and promising. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that these sectors are attracting foreign investment due to their strong potential in the current market environment.
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