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FIIs continue buying in debt market; add Rs 11,000 crore in August, highest since March

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Foreign institutional investors (FIIs) sold Indian stocks worth Rs 5,920 crore from the Indian capital markets in August, their biggest sell-off this year, National Securities Depository Limited (NSDL) data showed.

FIIs continue buying in debt market; add Rs 11,000 crore in August, highest since March
Foreign institutional investors (FIIs) sold Indian stocks worth Rs 5,920 crore from the Indian capital markets in August, their biggest sell-off this year, National Securities Depository Limited (NSDL) data showed.
A host of events dented foreign investors’ confidence in India including the increase in the tax on super-rich or foreign portfolio investors (FPIs) in the 2019 Union Budget, poor to mixed corporate earnings in recent quarters, overhang on economic growth locally, and the US-China trade war.
Because of the rise in FII selling, finance minister Nirmala Sitharaman withdrew the surcharge on FPIs last month. However, despite that foreign investors haven't turned net buyers, as expected by most analysts.
According to analysts, concerns over slowing domestic economy, volatility in the global markets and increased fears of global recession due to escalating trade war tension between the United States and China overshadowed the positive move of withdrawal of surcharge.
Moreover, they expect these outflows to continue as long as the view of FPIs on emerging market economies doesn't turn bullish. Deepak Jasani of HDFC Securities said that foreign investors are not convinced about economic growth picking up in India over the next one-two quarters which will continue selling by FPIs.
However, FIIs are still buying into the Indian debt market. According to the latest depositories data, FPIs withdrew a net amount of Rs 17,592.28 crore from equities, however, they pumped in a net sum of Rs 11,672.26 crore in the debt segment, highest since March 2019.
In July overseas investors had pulled out Rs 2,985.88 crore from the capital markets. Of which, they pulled out Rs 12,419 crore from equity segment and bought worth Rs 9,433 crore in the debt segment.
Prior to that, FPIs had infused a net Rs 8,319 crore in June, Rs 1,187 crore in May, while pulling out Rs 5,099 crore in April from the debt market.
According to market experts, the debt segment is attractive to the foreign investors given the soft interest rates globally as well as domestically and hopes of further reduction in rates. Government bonds offer higher liquidity, easy entry and exits and are sensitive to rate falls.
Further, the FPI investment limit was raised for FY20 to 6 percent of outstanding issuance of government bonds, from 5.5 percent in FY19, making the segment more attractive. This also helps investors a cushion from market volatility.