FPIs hooked to debt market, total inflows this year hits $20 bn

Foreign portfolio investors were buyers in the Indian debt market for the seventh month in a row in August, taking their total investment to $20 billion so far this year.

In August, overseas investors pulled out $2 billion from stock markets while they pumped in $2.40 billion in debt.

The significant inflow in August follows a net inflow of Rs 1.16 lakh crore in the previous six months from February- July 2017. In January, FPIs withdrew more than Rs 2,300 crore from the debt market.

"FPIs turned sellers in both cash and futures markets. In the cash market, they were sellers at $1.8 billion and in futures, they were sellers at $ 636 million. However, they remained buyers in the debt market for the 7th month in a row with strong inflows of $ 2.4 billion in August," Morgan Stanley said in a research note.

According to the latest depository data, FPIs have put in a net sum of Rs 48,628.40 crore ($7.60 billion) in the equity space while they have ploughed in Rs 1,29,510.67 crore ($20.26 billion) in the debt segment, taking their total investments to Rs 1,78,139.07 crore ($27.86 billion).

Market analysts believe the fundamentals of Indian economy remain strong as the twin deficits have "largely corrected". Inflation is expected to settle around the targeted 4 per cent, down from double digits a few years ago.

"Encouraged by this, portfolio inflows have surged by $24 billion this year, coupled with strong foreign direct investments," DBS said in a recent research note.

While other major central banks signal a slow policy normalisation path, emerging market monetary policies have diverged as softer inflation lends a dovish tilt.

"The resultant wide real rates have been a draw for foreign investors," it added.