Foreign portfolio investors increased investments in Indian government securities by Rs 8,000 crore in November, supported by a stronger rupee, lower bond yields, and a drop in crude oil prices, reversing recent withdrawal trends.
FPIs Increase Investments in Indian Debt Markets
Foreign portfolio investors (FPIs) increased their investments in government securities under the Fully Accessible Route (FAR) by nearly Rs 8,000 crore in the first week of November, as a strengthening rupee, declining bond yields and easing crude oil prices improved sentiment towards Indian debt markets.
FPI holdings in FAR government securities increased to Rs 3.65 lakh crore on November 9 from Rs 3.57 lakh crore on November 2, registering an increase of Rs 7,968.78 crore, according to data compiled from the Clearing Corporation of India (CCIL). During the same period, the Indian rupee strengthened from 94.90 on November 2 to 93.74 against the US dollar on November 9. Meanwhile, the yield on the 10-year benchmark government security declined to 7.178 per cent from 7.315 per cent, easing by nearly 14 basis points.
Factors Driving Market Sentiment
The improvement in domestic market sentiment comes amid a decline in international crude oil prices and hopes of easing geopolitical tensions in West Asia. Brent crude, which had traded above USD 105 per barrel before the US midterm election results, declined to USD 96.41 per barrel on Monday. Lower crude prices have eased concerns over India’s import bill, inflation and pressure on the domestic currency. Expectations of progress towards easing tensions between the United States and Iran have also supported sentiment in the bond market.
Impact of Market Movements
An appreciating rupee improves dollar-denominated returns for overseas investors by reducing currency-related losses, while declining bond yields increase the market value of existing government securities, potentially making them more attractive to foreign investors. The latest increase also marks a reversal of the recent trend of foreign investment withdrawals from the government securities market. FPIs had withdrawn Rs 5,615.21 crore in October, Rs 10,592.89 crore in September and Rs 846.11 crore in August from FAR government securities, according to CCIL data.
The recent movement in currency and bond markets could support renewed foreign investor interest, although the sustainability of inflows will depend on global interest rate expectations, crude oil prices and further movement in the rupee.
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