FPIs pump ₹38,098 crore in Indian equities, debt inflows at ₹13,223 crore; Will the trend continue in FY25?

Foreign portfolio investors (FPIs) continued their buying streak in March, turning steady buyers in Indian markets. Inflows rose in both debt and equities. Foreign investors extended the modest streak picked up in February after being big sellers in January. Market experts have also highlighted that FPIs also invested in some bulk deals through the stock exchanges this month.

FPIs have bought ₹38,098 crore worth of Indian equities and the total inflow stands at ₹51,542 crore as of March 22, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data. The total debt inflows stand at ₹13,223 crore so far this month.

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“An interesting feature of the foreign portfolio investment in India this fiscal is the steady growth in debt investment in sharp contrast to the volatile equity investment. This rising trend in debt investment is evident in March, too, with inflows of ₹13,223 crore in debt through 22nd March,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Will the inflows sustain in FY25?

The fundamental reason for the sustained FPI flows into debt is the inclusion of Indian bonds in the JP Morgan EM Bond Fund and Bloomberg Bond Index which is expected to bring investment of around $25 billion. This investment will begin only by June 2024 and, hence, FPIs are doing some front running in view of this potential investment, according to market experts.

In the bond market, Treasury yields sank to pull back further for the week. The yield on the 10-year Treasury fell to 4.20 per cent from 4.27 per cent late Thursday.

‘’FPI inflows into debt is likely to continue, going forward. However, a sharp surge in debt flows is unlikely since the US bond yields have also risen in recent days and if the differential between developed market bond yields, particularly US bonds, and Indian bond yields decline, the debt inflows will moderate,” said Dr. V K Vijayakumar.

On the macro-economic factors, forthcoming general elections and large companies reflecting profound earnings along with decent valuations would stimulate India to be on the top spot amongst the global emerging markets to look out for atleast next 2-3 years, said market analysts.

‘’FPI debt investments have been extremely robust this fiscal due to attractive yields on Indian sovereign debt relative to the US treasury. This has been supported by strong macros in form of the robust growth outlook for the Indian economy, stable inflation and a stable currency and the stated objective of the government to improve its fiscal deficit,” said Nitin Raheja, Executive Director, Julius Baer India.

‘’Further the expected global tapering in policy rates should make bond yields in emerging economies look even more attractive to investors making this trend of inflows into Indian debt more sustainable,” added Raheja.

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FIIs and DIIs

Foreign institutional investors (FIIs) were net sellers in Indian markets as outflows were higher than net investments last week even with stock markets logging a minor weekly gain. Inflows led by domestic institutional investors (DIIs) continued which balanced the outflows by foreign investors.

Even though FIIs were sellers for four out of five sessions this week and the net outflow stands at ₹83,65.53 crore, while DIIs were buyers for all sessions, with a total investment of ₹19,351.62 crore, according to stock exchange data.

FPI activity in Indian markets

FPIs outflow initially declined in February until they were net buyers by the end of the month, despite high US bond yields. The inflow into Indian equities stood at ₹1,539 crore and the debt market investment rose to ₹22,419 crore in February on top of the ₹19,836 crore bought in January.

The inclusion of government bonds to JPMorgan and Bloomberg debt indices especially triggered foreign fund inflows into debt markets. FPIs turned massive sellers in January 2024 snapping their buying streak as investments saw a sharp uptick in December 2023 after they reversed their three-month selling streak in November 2023.

However, inflow intensified in December on strong global cues after the US Federal Reserve signalled the end of its tightening cycle and raised expectations of a rate cut in March 2024. This led to a crash in US bond yields and triggered foreign fund inflows into emerging markets like India.

For the entire calendar year 2023, FPIs bought ₹1.71 lakh crore in Indian equities and the total inflow stands at ₹2.37 lakh crore taking into account debt, hybrid, debt-VRR, and equities, according to NSDL data. FPIs’ net investment in Indian debt market stands at ₹68,663 crore during 2023.

Overall, only four months in 2023–January, February, September, and October- saw net FPI outflows from Indian equities. May, June, and July each recorded FPI inflows above ₹43,800 crore.

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