September sees strong FPI inflows; equities score over debt

Earlier this month, a Morgan Stanley report said that India is likely to be included in the global bond indices by early next year and this could fetch $170 billion to $250 billion inflows into the bonds over the next decade.

By Manish M. Suvarna

In the current financial year, September saw the highest amount of foreign portfolio investments so far, but inflows into debt remained tepid compared to the equities. According to the NSDL data, foreign portfolio investors (FPI) invested Rs 13,163 crore into equities and Rs 5,423 crore in debt up until September 21.

Between September 1 and 21, the net investment into debt by FPIs stood at Rs 12,144 crore in August. In August, investments by FPIs stood at Rs 16,556 crore.

“The foreign investors had taken positions in Indian debt when 10-year yields were at 6.22-25% levels in August, but in September it has come down to 6.12-15%, this, in turn, has lowered interest of foreign investors during September,” said Ajay Manglunia, MD and head, institutional fixed income at JM Financial.

Earlier this month, a Morgan Stanley report said that India is likely to be included in the global bond indices by early next year and this could fetch $170 billion to $250 billion inflows into the bonds over the next decade. Most market participants said that the improvements in macroeconomic conditions and the government’s push towards capex-driven growth may help India to get included in the global bond indices.

“We are very close to Indian sovereign debt being included in global indices. This has laid the foundation for a renewed interest in Indian bonds, especially from foreign investors. Another catalyst is the Indian macro versus the global economic outlook. Indian debt market seems to be offering a better risk-reward equation versus other global markets,” said Manglunia.

Lower rates and easy liquidity conditions globally are also attracting FPI towards emerging markets in search of better returns. “Central banks globally have become more tolerant to inflation. Thus, the prevailing easy liquidity and low-rate environment are likely to persist and any normalisation will happen only at a very slow pace. This has increased the investor’s appetite for an emerging market,” said Pankaj Pathak, Fund Manager, Fixed Income at Quantum Asset Management.

Dealers with state-owned banks said that the investment by FPIs would increase in future after the inclusion of Indian bonds to global indexes. Further, the outlook for the bond market has been positive as the central bank is firmly supporting the markets.