August 25th 2024.
In a recent development, it has been reported that foreign investors have injected an impressive amount of Rs 11,366 crore into the Indian debt market since the beginning of this month. This has resulted in the net inflow in the debt segment crossing the mark of Rs 1 lakh crore. The growing interest of foreign investors in the Indian debt market can be credited to India's inclusion in JP Morgan's Emerging Market government bond indices in June this year.
According to data from the depositories, Foreign Portfolio Investors (FPIs) have injected a total of Rs 11,366 crore into the debt market this month alone. This comes after a net investment of Rs 22,363 crore in July, Rs 14,955 crore in June and Rs 8,760 crore in May. However, in April, FPIs had pulled out Rs 10,949 crore. With this latest inflow, FPIs have now invested a total of Rs 1.02 lakh crore in the Indian debt market so far this year.
Experts in the market believe that since the announcement of India's inclusion in global bond indices in October 2023, FPIs have been front-loading their investments in the Indian debt market in anticipation of this development. Even after the inclusion, their inflows have remained strong. However, on the other hand, FPIs have pulled out over Rs 16,305 crore from equities this month due to various factors such as the unwinding of the yen carry trade, recession fears in the US, and ongoing geopolitical conflicts.
Himanshu Srivastava, Associate Director at Morningstar Investment Research India, explained that the increase in capital gains tax on equity investments announced in the post-budget period has largely contributed to this selling spree. He also mentioned that FPIs have been cautious due to high valuations of Indian stocks and global economic concerns such as rising recession fears in the US, uncertainty over interest rate cuts, and the unwinding of the yen carry trade.
Despite these challenges, India remains an attractive destination for long-term investments from FPIs. Manoj Purohit, Partner and Leader at BDO India, stated that amidst a global slowdown and geopolitical tensions, India continues to be a favorable investment option for foreign investors. He believes that India is in a sweet spot and has the potential to provide good returns in the long run.
In terms of sectors, FPIs have been major sellers in the financial sector in India in the first half of August. Vipul Bhowar, Director of Listed Investments at Waterfield Advisors, explained that FPIs are selling banking shares due to concerns over slow deposit growth and challenges faced by banks in the first quarter of FY24. On the other hand, foreign investors have shown interest in the telecom and healthcare sectors, which are considered safe and have good growth and earnings prospects.
Overall, experts believe that India's position in the global market remains favorable for attracting long-term investments from FPIs, despite challenges and uncertainties. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, pointed out that while FPIs have been selling in sectors such as metals due to fears of economic slowdown in the US and China, they have also shown interest in sectors like telecom and healthcare, where the growth and earnings prospects are positive.
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