Overseas investors pumped in a record Rs 1.6 lakh crore ($26 billion) into the Indian debt market in 2014 mainly on account of high interest rate and government’s reform agenda.
The latest round of inflow came after they pulled out around Rs 51,000 crore ($8 billion) in 2013.
The inflow by Foreign Institutional Investors in 2014 has significantly contributed to taking the cumulative net investments into the Indian debt markets since being allowed over two decades ago, in November 1992, to Rs 2.6 lakh crore.
These investors got re-christened as FPIs or Foreign Portfolio Investors in 2014 under a new regulatory regime that promises to make it easier for them to invest in India.
This huge investment inflow, which belies commonly used nomenclature of ‘hot money’ because such funds can be withdrawn anytime, has come at a time when foreign companies have been mostly reluctant on their FDIs (Foreign Direct Investments) that carry a common perception of being longer-term in nature.
According to market experts, high interest rates coupled with strong-willed RBI (Reserve Bank of India) attracted FIIs to invest in Indian debt markets.
In 2014, FIIs have infused a net amount of Rs 1,59,157 crore in the debt markets — making it the highest investment level since 1997. Separate investment data for debt was not available prior to that period.
Besides, FIIs have poured a net of Rs 98,000 crore in equities.
While inflows into bonds have been significantly higher than the equities in 2014, the overseas investors had kept away from the debt market in 2013 and had pulled out a net sum of Rs 51,000 crore in that segment due to weakness in the Indian currency.
Interestingly, most of the inflows this year into Indian debt market has gone into government securities.
Market experts said that overseas investors remained bullish on the Indian debt markets throughout 2014, barring the month of April. The sentiments had been bullish even during the first half of the year, mainly on hopes that a strong reform-oriented government will come to power at the Centre.
These positive sentiments continued after a new government took over in May and got a further boost from the reform measures announced subsequently.
“After the change in government at the Centre in May, there has been a significant change in sentiment and outlook towards India. Most foreign investors are finding India to be a far better choice that can generate returns in both short and long term,” Ladderup Wealth Management’s Managing Director Raghvendra Nath said.
Amongs various emerging market economies, India is being viewed as the strongest candidate for portfolio investments, he added.