As global indices move to include Indian bonds, FPIs take shine to debt

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, “an interesting feature of the foreign portfolio investment in India this fiscal is the steady growth in debt investment in sharp contrast to the volatile equity investment.” This rising trend in debt investment is evident in March with inflows of Rs 13,223 crore in debt till March 22.

“The fundamental reason for this sustained FPI flows into debt is the inclusion of Indian bonds in the JP Morgan EM Bond Fund and Bloomberg Bond Index which is expected to bring investment of around $ 25 billion. “This investment will begin only by June 2024 and, therefore, FPIs are doing some front running in view of this potential investment,” he said.

FPI inflows into debt is likely to continue, going forward. However, a sharp surge in debt flows is unlikely since the US bond yields have also risen in recent days and if the differential between developed market bond yields, particularly US bonds and Indian bond yields decline, the debt inflows will moderate, Vijayakumar said.

Meanwhile, equity markets traded volatile amid mixed cues and gained nearly half a per cent last week. The beginning was subdued and pressure on select heavyweights pushed the index lower in the middle. However, buoyancy on the global front triggered a rebound in the final sessions, which aided the index to close in the green. Consequently, both benchmark indices, Nifty and Sensex, closed a tad higher at 22,096.70 and 72,831.94 levels. “Meanwhile, a mixed trend on the sectoral front kept the participants occupied wherein realty, auto and metal posted strong gains while IT and FMCG settled in the red. The broader indices also witnessed respite and gained 1.5% each,” said Ajit Mishra, SVP – Technical Research, Religare Broking

“The coming week is a holiday-shortened one and we expect volatility to remain high due to the scheduled expiry of March month derivatives contracts,” Mishra said. Besides, participants will continue to take cues from the global indices, especially the US markets, which are moving from strength to strength with every passing week. The major index, the Dow Jones Industrial Average (DJIA) is set to test a new milestone of “40,000” and the support base has shifted to 39,200 in case of any profit taking, he said.