Foreign Portfolio Investors (FPIs) continued to double down on Indian debt, pumping in record ₹22,419 crore in this segment in February 2024. This was higher than ₹19,837 crore invested by FPIs in January this year. 

This latest reading was the highest monthly infusion in debt markets by FPIs since the September 2023 announcement of India’s sovereign bonds inclusion in JP Morgan’s widely-tracked Government Bond Index-Emerging Markets (GBI-EM), depositories data showed.

In October last year, FPIs had invested ₹6,381 crore in debt, followed by ₹14,860 crore in November 2023 and ₹18,302 crore in December 2023.

“This trend of steady debt investment is likely to continue”, said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Net buyers in equities

On the equities front too, there was a positive development with FPIs turning net buyers in February 2024 at ₹1,539 crore. In January this year, FPIs were net sellers to tune of ₹ 25,744 crore. 

Buoyed by a strong Q3 GDP growth print of 8.4 per cent announced on February 29, the FPIs on March 1 pumped in ₹ 4,201 crore in equities.

“Going forward, given the strong macro-economic picture and likely continuation of current dispensation post upcoming general elections, there is clear interest among foreign investors on India as the next economy to bet on,” said analysts. 

In 2023, FPIs pumped in record $22 billion net investments in Indian equities, with the net inflow in December 2023 at record $8 billion.

Vijayakumar noted that FPIs turned net buyers in equities in February 2024 despite the US bond yields ruling high with the 10-year yield at around 4.25 per cent. 

“FPIs may again turn sellers in some of the coming days. But they are unlikely to sell aggressively because their selling is not having any impact on the market which is setting new record highs”, he said.

FPIs will have to buy the same shares, which they are selling now,  at higher prices when the situation turns favourable for their buying. “Therefore, even if they sell in the coming days, that will be subdued selling. 

It is important to understand the fact that the DIIs, HNIs and retail investors are calling the shots now, not FPIs”, Vijayakumar added. FPIs were big sellers in financials and FMCG in February, he added.

“In the short term, the FPI flows into equities might be dependent on the movement of interest rates. Should a US Fed rate cut happen in June to September 2024 quarter, one could expect flows to pick up,” analysts said. 

“However, the structural story of reallocation of FPIs from China and other emerging markets to India is the biggest story one needs to watch out for from a three to five-year perspective,” they said. India’s allocation of Global Emerging Markets (GEM) funds are now at a record high of 18.8 per cent. Last week saw the third-highest weekly inflows in the Indian dedicated funds. 

Historically, FPIs have been net buyers in equities in the month March in ten of the last twelve years.

Also, March is a month which is usually the best for insurance companies as tax planning happens at this time every year. This month is also expected to see strong activity of PE/ promoter exits besides a slew of qualified institutional placements (QIP) on the back of buoyant equity markets, where benchmark indices Nifty50 and Sensex hit an all-time high on Friday.

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