Foreign portfolio investors (FPIs) have displayed a remarkable resurgence in their investment activities within the Indian equity markets this month, injecting a substantial amount of over Rs 38,000 crore. This surge comes on the heels of a modest investment of Rs 1,539 crore in February and a significant outflow of Rs 25,743 crore in January, as per data from the depositories.
With this surge in investment, FPIs have turned positive to the tune of Rs 13,893 crore in equities so far in 2024, along with an investment of Rs 55,480 crore in the debt market.
Himanshu Srivastava, Associate Director at Manager Research at Morningstar Investment Research India, emphasized that FPIs have emerged as significant buyers in March. The favorable global economic conditions and positive Indian macroeconomic scenario have driven FPIs to invest in high-growth-oriented markets like India. Moreover, the recent market correction has presented an attractive buying opportunity.
Experts attribute the influx of FPIs to robust GDP growth and expectations of a potential shift in the RBI’s policy, potentially leading to rate cuts of 25-50 basis points in the latter half of fiscal 2025.
However, FPIs turned net sellers last week, albeit marginally, amounting to USD 314 million, possibly due to adopting a cautious approach.
In addition to equities, FPIs have injected a massive Rs 13,223 crore into the debt market this month (till March 22). This influx follows Bloomberg’s announcement of India’s bonds inclusion in its Emerging Market (EM) Local Currency Government Index and related indices from January 31 next year.
Moreover, FPIs have been consistently investing in the debt markets over the past few months, with investments of Rs 22,419 crore in February and Rs 19,836 crore in January.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that the sustained FPI flows into debt are primarily driven by the anticipation of around USD 25 billion investment following the inclusion of Indian bonds in the JP Morgan EM Bond Fund and Bloomberg Bond Index. This investment is expected to commence by June 2024, prompting FPIs to front-run in anticipation.
Despite expectations of continued FPI inflows into debt, a sharp surge is unlikely due to the recent rise in US bond yields.