The quantum of investment in the debt segment is highest in this calendar year so far.
“The main reason for FPI buying debt is the rising spread between the bond yields in US and India. The US 10-year is below 1.30 per cent and the Indian 10-year has risen above 6.2 per cent. Also, the stability in INR has brought down the cost of hedging. Expectations regarding exchange rate also are favourable. At these high valuations in equity risk-reward favour debt,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.
For equities, he said “the momentum in the market and the fear of missing the momentum might have brought FPIs back to equity in August. The global scenario also turned favourable with the Fed sending a dovish message that the economy has a lot more ground to cover and rate hikes are far away”.
The investment came after the FPIs remained net sellers in July to the tune of Rs 7,273 crore.
Besides, in the first three trading sessions of September, FPIs have pumped in Rs 7,768.32 crore in Indian markets (both equity and debt).
Shrikant Chouhan, executive vice president, equity technical research at Kotak Securities, added that the rising pace of domestic vaccinations, a decent GST print for July and a sharp increase in August merchandise trade contributed to market sentiment even as PMI for August weakened.
On future of FPI flows, he said India cannot be ignored by global investors considering higher growth opportunities.
“In the remaining 2021, the global investment continues to remain challenging. Market is focusing on sustenance of growth in developed economies. As a result, global investors are looking on emerging markets to diversify risks,” Chauhan said.