Geopolitical jitters hit FPIs’ debt in‹ows; net out‹ows as of April 19 at ₹6,124 cr.
After six months of strong buying and consistent monthly in¤ows, Foreign Portfolio Investors (FPIs) shifted strategy in April, becoming net sellers in the debt market for ₹6,124 crore as of April 19.
Even as they pulled out, FPIs invested a net ₹49,684 crore in the Indian debt market this calendar year, as per depository data.
FPIs have been frontloading investments into Indian sovereign debt ahead of its inclusion in JP Morgan’s GBI-EM Global Diversied index starting in June this year.
Net sold equities also
In April, FPIs turned net sellers in equity, with out¤ows of ₹5,254 crore as of April 19, in¤uenced by heightened geopolitical tensions and rising U.S. bond yields impacting interest in Indian equities, depository data showed.
Escalating tensions post Iran-Israel con¤ict and a surge in U.S. bond yields prompted FPIs to dump equities worth ₹20,000 crore in just four trading sessions.
FPIs had net sold equities worth ₹25,744 crore in January 2024 but made a reversal with net investments of ₹1,539 crore and ₹35,098 crore in February and March, respectively. Overall, the total equity net investments by FPIs till April 19 this calendar year stood at ₹5,639 crore.
V. K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said: “A major trend in FPI activity this month is that
FPIs have turned sellers of debt after sustained buying for several months.”
‘Rupee depreciation’
This is the consequence of the rising U.S. bond yields and the concern regarding the rupee’s depreciation, he added.
The debt investment through the primary market stood at ₹6,711 crore, taking the net debt ¤ows in April through 1 to (-) ₹6,174 crore (net out¤ow).
On equities, Mr. Vijayakumar noted FPIs in April through 19 sold equities worth ₹ 13546 crore. The hotter-than-expected U.S. in¤ation and the consequent spike in bond yield (the 10-year rising above 4.6%) led to big selling in the Indian cash market.
Flow dwindles
Now, the total FPI ¤ow so far in April has dwindled to (-) ₹5,253 crore. “This kind of big selling happens whenever the U.S. bond yields spike beyond expectations”, he said.
On the portfolio changes by the FPIs, Mr. Vijayakumar said this month, FPIs have been big sellers in IT in anticipation of poor Q4 results. They were also sellers in FMCG and consumer durables.
FPIs were buyers in autos, capital goods, telecom, nancial services and power, he added.
Global indices inclusion
India will join the J P Morgan GBI-EM index with a 1% weight in June 2024, J P Morgan announced in September last year. The weight will increase by 1% each month until 10% in April 2025.
Also in March, Bloomberg Index Services announced Indian government bonds would be added to its Emerging Market Local Currency Government Index starting January 31, 2025. Together, the inclusion in both these indices is expected to result in in¤ows of $20-25 billion into the Indian debt market over an 18-month period, said experts.
Foreign investors had injected ₹1.2 lakh crore into the debt segment in FY24, marking the highest net in¤ows since 2014-15.
The other signicant event eagerly awaited by the nancial markets is the pivot of the U.S. Fed to commence an interest rate-cutting cycle.
(The writer is with The Hindu businessline)