Foreign Portfolio Investors (FPIs) achieved a new milestone in the Indian debt markets with their net investments so far this calendar year surpassing the ₹1 lakh crore-mark in August. 

Up to August 16, their total net inflows into the Indian debt market this calendar year stood at ₹ 1,00,100 crore, data with depositories showed. Till the end of August of last calendar year, the net FPI investments in the Indian debt market stood at ₹28,181 crore. In August 2024, the net investments (up to August 16) stood at ₹9,112 crore. 

A large part of the strong buying interest in the Indian debt market is India’s inclusion in JP Morgan’s Emerging Market government bond indices in June this year. In July 2024, FPIs had pumped ₹22,363 crore into the Indian government’s debt. 

Ever since the announcement of India’s inclusion came in October last year, FPIs have been front-loading their investments in Indian debt markets ahead of inclusion in global bond indices. Now post inclusion also, their inflows have remained robust.

Cautious on equities

FPIs continue to remain aggressive sellers in Indian equities this month with net outflows at ₹21,201 crore up to August 16. FPIs have remained aggressive sellers since Budget 2024 (July 23) with net selling touching nearly ₹50,000 crore. 

So far this calendar year, FPIs’ net investments into equities stood at ₹14,365 crore, depositories data showed.

They were however quite bullish on Indian equities last year with net investments up to August at ₹1,35,287 crore. 

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that a significant trend in FPI flows recently, which became pronounced in August, is the sustained selling by FPIs through the exchange while continuing to invest through the ‘primary market & others’ category. 

Since the beginning of August, FPIs have sold equity worth ₹32,684 crore through the exchange even while investing ₹11,483 crore through the primary market & others category, till August 16. This trend is likely to continue since India is the most expensive market in the world now and it is rational for FPIs to sell here and move the money to cheaper markets. This picture doesn’t change even if the market turns more bullish on fears regarding US recession receding, Vijayakumar said.

Vipul Bhowar, Director, Listed Investments, Waterfield Advisors, said, globally, concerns about the unwinding of the Yen carry trade, potential global recession, slowing economic growth, and ongoing geopolitical conflicts led to market volatility and risk aversion. 

Domestically, after being net buyers in June and July, some FPIs might have chosen to book profits following a strong rally in previous quarters, he said.

Additionally, mixed quarterly earnings and relatively higher valuations have made Indian equities less attractive. 

“Despite these factors, India’s strong economic performance, including GDP growth, reduced fiscal deficit, manageable current account deficit, and strong sector growth and industrial production, continues to attract many FPIs, indicating that FPI flows into India should persist”, Bhowar said.

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