Foreign investors have poured a whopping $2 billion into the Indian debt markets so far this month due to lower currency volatility coupled with “positive real interest rates”.
Foreign portfolio investors (FPIs) however pulled out Rs. 3,408 crore (USD 523 million) from equities on account of profit booking during this period.
According to the latest depository data, FPIs invested a net sum of Rs 12,135 crore ($ 1.86 billion) in debt markets during October 3-18.
This follows a net inflow of Rs 1.4 lakh crore in the last eight months — February-September. Prior to that, they had withdrawn more than Rs 2,300 crore.
Bajaj Capital CEO Rahul Parikh said that overseas investors remained steadfast in their backing by lapping up debt securities mainly due to positive real interest rates and lower currency volatility.
“At an expected CPI inflation of 4.2-4.5 per cent (as per RBI estimates) in the second half of the current fiscal, real interest rates in India remain attractive at (+)2 per cent or more, which the FPIs find very attractive,” he added.
Further, another major reason could be increase in limits in Indian bonds by Reserve Bank of India (RBI) and capital markets regulator Securities and Exchange Board of India (Sebi) by Rs 14,200 crore for the October-December 2017.
FPIs, which had earlier exhausted their limits in Indian government securities and corporate bonds, tapped this opportunity and rushed to buy these securities.
With regard to equity outflows, Anshul Saigal, portfolio manager at Kotak Mutual Fund said that the same can be attributed to profit booking by FPIs amid high valuations in Indian equities.
Besides, FPIs are focusing to other nations like China, where valuations are comparatively attractive.