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FPIs have shown a significant resurgence in their investment activity within the Indian equity markets this month, injecting over Rs 38,000 crore, mainly driven by favourable shifts in the global economic scenario and strong domestic macroeconomic outlook. The investment came following a modest investment of Rs 1,539 crore in February and a massive outflow of Rs 25,743 crore in January, data with the depositories snowed.
With this, foreign portfolio investors’ (FPIs) investment has turned positive to the tune of Rs 13,893 crore in equities so far in 2024 and Rs 55,480 crore in the debt market.
Himanshu Srivastava, Associate Director at Manager Research at Morningstar Investment Research India, highlighted that FPIs have become significant buyers in March. The improved global economic conditions and positive Indian macroeconomic scenario have driven FPIs to invest in high growth-oriented markets like India.
Additionally, the recent market correction has provided a buying opportunity.
Further, the influx of FPIs can be attributed to robust GDP growth and expectations of a potential shift in the RBI’s policy, possibly leading to rate cuts of 25-50 basis points in the latter half of fiscal 2025, experts believe.
However, last week, FPIs turned net sellers, although marginally, to the tune of USD 314 million. This could be largely attributed to FPIs adopting a cautious approach.
Apart from equities, FPIs have injected a massive Rs 13,223 crore into the debt market this month (till March 22). This came in the backdrop of Bloomberg announcing 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 investing in the debt markets for the past few months. They invested Rs 22,419 crore in February and Rs 19,836 crore in January.
“The fundamental reason for this sustained FPI flows into debt is the inclusion of Indian bonds in the JP Morgan EM Bond Fund and Bloomberg Bond Index, which is expected to bring investment of around USD 25 billion. This investment will begin only by June 2024, and therefore, FPIs are doing some front running in view of this potential investment,” VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.
Further, FPI inflows into debt are likely to continue going forward.
However, a sharp surge in debt flows is unlikely since the US bond yields have also risen in recent days, he added.
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