Foreign Portfolio Investors witnessing consistent growth in debt investments

In this fiscal year, foreign portfolio investment (FPI) in India has witnessed a steady growth in debt investment compared to volatile equity investment. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted this trend, stating that in March alone, there were inflows of Rs 13,223 crore in debt investments.

According to Vijayakumar, the sustained FPI flows into debt can be attributed to the recent inclusion of Indian bonds in the JP Morgan EM Bond Fund and the Bloomberg Bond Index. This move is expected to attract around $25 billion in investments, set to commence by June 2024. As a result, FPIs are anticipated to engage in front-running activities in anticipation of this significant investment opportunity.

Despite the optimistic outlook on FPI inflows into debt, Vijayakumar noted that a sharp increase in debt flows is unlikely. This is because US bond yields have been on the rise recently, and if the gap between developed market bond yields, particularly US bonds, and Indian bond yields narrows, it could moderate the influx of debt investments into India. The future trajectory of FPI inflows into debt will largely depend on these market dynamics.

Overall, the current trend indicates a shift towards debt investments among foreign portfolio investors, driven by the inclusion of Indian bonds in prominent global bond indices. With potential investment opportunities on the horizon, investors are closely monitoring market developments to make informed decisions regarding their FPI allocations in India’s debt market.