FPIs pumped Rs 19,800 crore into debt market in January, highest monthly investment in 6 years

Foreign Portfolio Investors (FPIs) have injected over Rs 19,800 crore in the country's debt market in January, making it the highest monthly inflow in more than six years, on the back of inclusion of Indian government bonds in the JP Morgan Index.

On the other hand, they pulled out Indian equities worth Rs 25,743 crore last month owing to surging bond yield in the US.

According to the data with the depositories, FPIs made a net investment of Rs 19,836 crore in the debt markets in January. This was the highest inflow since June 2017, when they infused Rs 25,685 crore.

Before this, FPIs injected Rs 18,302 crore in the debt market in December, Rs 14,860 crore in November, and Rs 6,381 crore in October.

"Indian fixed income markets witnessed robust net inflows from FPIs to the tune of $ 2.39 billion in January on the back of inclusion of Indian government bonds in the JP Morgan Index," Himanshu Srivastava, Associate Director- Manager Research, Morningstar Investment Research India, said.

JP Morgan Chase & Co. in September last year announced that it will add Indian government bonds to its benchmark emerging market index from June 2024.

This landmark inclusion is anticipated to benefit India by attracting around $ 20-40 billion in the subsequent 18 to 24 months. This inflow is expected to make Indian bonds more accessible to foreign investors and potentially strengthen the rupee, thereby bolstering the economy, he added.

Moreover, market experts said that Finance Minister Nirmala Sitharaman's aim to reduce fiscal deficit to 5.1 per cent of gross domestic product (GDP) for FY25 is distinctly positive for the debt market going forward.

Sitharaman in the interim Budget refrained from announcing populist measures, which will help the government trim the fiscal deficit to 5.1 per cent of the GDP next fiscal and 4.5 per cent in FY26.

The interim Budget is only a vote-on-account, a procedural necessity pending elections.

She said that the fiscal deficit for 2024-25 is estimated at 5.1 per cent of GDP against 5.8 per cent in the current financial year

Overall, the total FPI flows for 2023 stood at Rs 1.71 lakh crore in equities and Rs 68,663 crore in the debt markets. Together, they infused Rs 2.4 lakh crore into the capital market.

The flow in Indian equities came following a worst net outflow of Rs 1.21 lakh crore in 2022 on aggressive rate hikes by the central banks globally. Before the outflow, FPIs invested money in the last three years.