FPIs’ India frenzy is now at a nine-year peak

At ₹2.68 trillion, this is just ₹9,625 crore away from 2014-15’s record net inflows of ₹2.77 trillion. In monthly average terms, foreign portfolio investors have invested net ₹29,780 crore in Indian equities and debt this fiscal. With three months left for the close of 2023-24, the final figure could set a new record for FPI.

Between equity and debt, the former accounts for net flows of ₹2.02 trillion, while debt investments stand at ₹66,105 crore. In 2014-15, the year that the Narendra Modi government first came to power, equity inflows were at ₹1.11 trillion, while net debt inflows stood at ₹1.66 trillion.

Inflows have jumped thanks to expectations of robust corporate earnings; global fund purchases ahead of India’s upcoming inclusion in the JP Morgan Government Bond Index-Emerging Markets (GBI-EM); and the widening spread between the yields of US and India 10-year bonds.

“FPI inflows are likely to remain strong owing to robust corporate earnings performance,” said Gautam Duggad, head of research, institutional equities, Motilal Oswal Financial Services. Duggad anticipates Nifty earnings to grow by 10% in the December quarter, following a strong 28% growth in the September quarter.

According to Sujan Hajra, chief economist and executive director, Anand Rathi Shares and Stock Brokers, overall FPI flows have also been boosted by global funds buying Indian government paper ahead of its inclusion in JP Morgan’s bond index on 28 June. Hajra also pointed to the widening spread between yields in India and the US since October, which was inducing flows into Indian paper lately. The spread widened from 242 basis points (bps)at the end of October to 329bps by the end of December.

Investors buying now could provide the supply when global index funds enter the scene to buy bonds in June, added U.R. Bhat, founder, Alphaniti Fintech.

India could witness $20-25 billion of foreign fund inflows, thanks to the inclusion in the GBM-EM index. Around two dozen Indian government bonds are eligible for indexing with a notional value of $330 billion. The bonds will be included in the benchmark index over 10 months with an inclusion of 1% weight a month.

This has spurred FPI investments in debt this fiscal, particularly in November and December, which at ₹33,162 crore account for half of the debt flows so far. In terms of net FPI equity inflows, December at ₹66,135 crore saw record high monthly investment.

FPI assets under custody in equity and debt stood at $795.19 billion as of the fortnight ended 31 December, according to NSDL. This is an increase of 34% from the $592.4 billion held at the end of 2022-23.