Foreign Portfolio Investors (FPIs) displayed robust confidence in India’s debt market in January, pouring in over Rs 19,800 crore, marking the highest monthly inflow in more than six years. The surge in investments was attributed to the significant development of Indian government bonds being included in the JP Morgan Index. While FPIs opted to withdraw Indian equities worth Rs 25,743 crore last month, the influx into the debt market showcased a positive trajectory for fixed-income investments.
Data from depositories revealed that FPIs recorded a net investment of Rs 19,836 crore in January, surpassing the previous highest inflow of Rs 25,685 crore observed in June 2017. The consecutive momentum in FPI investments indicates growing confidence in India’s fixed-income markets.
The inclusion of Indian government bonds in the JP Morgan Index, announced by JP Morgan Chase & Co. in September 2023, played a pivotal role in attracting FPIs to the debt market. This landmark move is expected to bring in an estimated USD 20-40 billion over the next 18 to 24 months, making Indian bonds more accessible to foreign investors and potentially strengthening the rupee.
Himanshu Srivastava, Associate Director- Manager Research at Morningstar Investment Research India, noted the positive impact of the inclusion, stating that the significant inflow in January was a result of the JP Morgan Index inclusion, positioning Indian fixed-income markets favorably.
Market experts also emphasized Finance Minister Nirmala Sitharaman’s fiscal prudence outlined in the interim Budget, which refrained from announcing populist measures. The government’s commitment to reducing the fiscal deficit to 5.1% of GDP for FY25 was well-received by investors, contributing to the positive sentiment in the debt market.
Sitharaman’s conservative fiscal approach, with a deficit target of 5.1% of GDP for 2024-25, and further reduction to 4.5% in FY26, garnered approval from market participants. The overall fiscal discipline is seen as a positive factor for the debt market’s outlook.
The total FPI flows in 2023 reached Rs 1.71 lakh crore in equities and Rs 68,663 crore in the debt markets, marking a combined infusion of Rs 2.4 lakh crore into the capital market. The resilience shown by FPIs in the face of global uncertainties and the strategic fiscal approach outlined by the government signal a positive start to the year for India’s financial markets.
