Foreign Portfolio Investors (FPIs) continued to show increased buying interest in Indian equities and debt, pumping in about ₹8,772 crore (little over a $ 1 billion) in the first week of new year 2024.

Of this ₹ 8,772 crore, as much as ₹ 4,773 crore went into equities and ₹ 3,999 crore into debt securities, data with depositories showed.

This came on top of record $8 billion injected by FPIs in equities and $2 billion in debt in December 2023.

The robust FPI inflows in the first week this year has added some weight to market talk that 2024 could be an even better year for FPI inflows than 2023. 2023 saw a complete reversal after record selling of $17 billion in 2022 and was the highest-ever yearly inflow of $21 billion, surpassing the 2020 record.

Meanwhile, a CLSA India Note said that falling interest rates and cool-off in the US dollar could be potential tailwinds for emerging markets (EMs) as an asset class in 2024. “This may drive a rise in inflows into EM funds, some of which should trickle down to the Indian market despite its premium valuation. Valuation (in Indian markets) still remains an overhang. Strong FPI inflows will be necessary to sustain the positive momentum of the Indian markets”, CLSA note added.

Most-preferred destination

India has now become the most-preferred destination for FPIs, which made net inflows for eight months in 2023. India-dedicated money hit a three-year high in 2023 and dominates the FPI inflows with 75 per cent of the $21 billion coming through India-dedicated funds, showed a CLSA Research Note of January 4.

This dominance of India-dedicated money in overall FPI inflows may be a sign of recognition for the country’s deep, broad and liquid market over and above its economic potential to attract money on its own, it added.

Vikash Kumar Jain, Strategist, CLSA India, said “We believe equities are pricing in a perfect US soft landing and any disappointment on growth or sticky inflation will hurt stocks. In this consensus soft landing scenario, a bigger share of foreign institutional inflows (FII) will come from non-India dedicated funds, which should support mega-caps over small-/mid-caps.”

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said “Since 2024 is expected to witness further declines in US interest rates, FPIs are likely to increase their purchases in 2024 too, particularly in the early months of 2024 in the run up to the general elections. FPI inflows into debt will also see acceleration in 2024.”

FPI inflows can help accelerate the uptrend in the main benchmark indices since bulk of the FPI flows will be into large-caps, he added.

Low ownership

Despite strong inflows, FPI ownership still is near decadal low. Although 2023 inflows fully offset the selling seen in 2022, FPI ownership of Indian markets stood at 18.1 per cent of the BSE-500 stocks, close to the decadal low of 17.9 per cent seen in September 2022 and way below the highs of nearly 21 per cent seen less than three years ago, according to CLSA.

Debt turning attractive 

The current year is going to see debt getting more attractive than equities with impending inclusion of sovereign debt in global bond indices like J P Morgan EM Bond Index. The inclusion in JP Morgan Index is likely to bring $25 billion of foreign money into Indian debt markets. That could tempt Indian households to look at debt for better returns this year, say experts.

FPIs are already positioning themselves to gain from the opportunity of India’s bond inclusion in global indices from June 2024. The year 2023 saw the highest-ever FPI flow into debt securities at ₹ 68,663 crore (about $8.5 billion) with the month of December 2023 notching the highest monthly inflows of ₹ 18,302 crore in 2023.

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