The tide seems to be turning for foreign capital flows into Indian markets. While equity investment by Foreign Portfolio Investors (FPIs) reached only Rs. 13,000 crores in the new year, debt markets have attracted over Rs. 55,000 crores from overseas investors. This rising trend in debt investment gains more significance with March already witnessing debt inflows of Rs. 13,000 crores.
The strong surge in debt investment can be attributed to the imminent inclusion of Indian government and corporate bonds in major global indices such as JP Morgan's EM Bond Index and Bloomberg's Bond Index. This inclusion, expected to kick off from June 2024, is projected to bring additional FPI capital of approximately $25 billion into Indian debt.
Knowledgeable market analysts note that FPIs have started pre-empting this massive inflow by significantly raising their exposure to high-quality Indian debt papers in recent months. The ongoing upgrades of India's sovereign ratings by international agencies have also boosted overseas confidence in the domestic debt ecosystem.
While debt inflows are likely to continue dominating due to the index additions, experts warn about volatility in the weeks ahead around monthly derivatives expiry. Any narrowing of yield differentials between Indian and US bonds may also cause a moderation in debt flows. However, with the structural drivers remaining intact, Indian fixed income is expected to increasingly vie for a bigger share of global institutional portfolios.
FPI investment in Indian debt markets surges ahead of inclusion in major global bond indices
Foreign portfolio investors have pumped in over Rs. 55,000 crores into Indian debt markets since the start of 2024, witnessing a major surge compared to equity, on the back of upcoming inclusion of Indian bonds in key bond indices.
Indian debt markets attract huge foreign capital ahead of JP Morgan and Bloomberg index upgrades
Keywords: FPI investment, Indian debt markets, bond indices, JP Morgan EM Bond Index, Bloomberg Bond Index, debt inflows
