Foreign Investors Inject Rs 11,366 Crore in Indian Debt Market; Net Inflow Crosses Rs 1 Lakh Crore Mark

Foreign Investors Pour Rs 11,366 Crore into Indian Debt Market, Surpassing Rs 1 Lakh Crore Mark

New Delhi: In a significant development, foreign investors have injected a whopping Rs 11,366 crore into the Indian debt market so far this month, pushing the net inflow tally in the debt segment to over the Rs 1-lakh-crore mark.

The strong buying interest exhibited by foreign investors in the Indian debt market can be attributed to India’s inclusion in JP Morgan’s Emerging Market government bond indices in June this year.

Data from the depositories reveals that Foreign Portfolio Investors (FPIs) have poured in Rs 11,366 crore in the debt market this month (till August 24). This inflow follows a net investment of Rs 22,363 crore in July, Rs 14,955 crore in June, and Rs 8,760 crore in May. In contrast, FPIs had pulled out Rs 10,949 crore in April.

With the latest influx, FPIs’ net investment in debt has reached an impressive Rs 1.02 lakh crore in 2024 so far.

Market analysts attribute this sustained interest to the anticipation of India’s inclusion in global bond indices since the announcement was made in October 2023. Even after the inclusion, FPIs’ inflows have continued to remain robust.

On the flip side, FPIs have withdrawn over Rs 16,305 crore from equities this month due to various factors such as unwinding of the yen carry trade, recession fears in the US, and ongoing geopolitical conflicts.

Himanshu Srivastava, Associate Director, Manager Research at Morningstar Investment Research India, highlighted that the increase in capital gains tax on equity investments post-budget announcement has fueled the selling spree. Additionally, high valuations of Indian stocks and global economic concerns have made FPIs cautious.

Despite these challenges, India remains an attractive destination for long-term investments from FPIs. Manoj Purohit, Partner & Leader, Financial Services Tax at BDO India, emphasized India’s favorable position amidst global uncertainties, making it a compelling choice for foreign investors.

In terms of sectors, FPIs have been selling off financials in India, particularly banking shares, due to concerns over slow deposit growth and challenges in Q1FY25 such as shrinking margins and deteriorating asset quality.

However, FPIs have shown interest in sectors like telecom and healthcare, where growth and earnings prospects are promising.

Overall, India continues to attract foreign investments despite global economic headwinds, positioning itself as a lucrative investment destination for FPIs.