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Foreign G-Sec selling halves, but oil and global yields pose risks

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In short

Total monthly foreign outflows eased by 13% as overseas funds pulled back on aggressive asset offloading across Indian sovereign debt and equities. Selling pressures had previously intensified after Bloomberg postponed adding Indian government securities to its Global Aggregate Index, stalling earlier momentum. Nevertheless, market experts suggest shifting international dynamics, such as fiscal worries prompting asset sales in Brazil, could position India as an attractive emerging market alternative.

Key points

  • Slower foreign asset offloading does not yet guarantee a permanent reversal of capital fl…: Slower foreign asset offloading does not yet guarantee a permanent reversal of capital flight from the domestic market.
  • Elevated international yields, high oil prices, and delayed bond index inclusions remain…: Elevated international yields, high oil prices, and delayed bond index inclusions remain serious risks for foreign inflows.
  • Skepticism over returns on major artificial intelligence investments has positioned India…: Skepticism over returns on major artificial intelligence investments has positioned India as a viable alternative for global asset allocators.

Sources checked by our analysis pipeline: 1

Foreign portfolio investors (FPIs) sold ₹5,400 crore of government securities under the fully accessible route (FAR) in October, 49% less than in September, according to data from Clearing Corporation of India (CCIL). Their net equity sales declined 3% month-on-month to ₹34,843 crore, National Securities Depository (NSDL) data showed. Combined selling across FAR securities and equities fell 13% to ₹40,243 crore last month from ₹46,390 crore in September, offering some respite after sustained foreign outflows through much of the calendar year.

Debt inflows seen in June and July failed to sustain after Bloomberg deferred a decision on including Indian government bonds in its Global Aggregate Index.

Foreign portfolio investors reduced their selling of Indian government securities and equities in October compared to September. Despite this, high oil prices and global yields pose challenges for sustained portfolio inflows. Economists caution that the slowdown may not indicate a definitive change in foreign investment trends. Political dynamics in other emerging markets might influence foreign capital movement toward India.

FPIs had bought more than ₹50,000 crore of FAR securities during those two months, including a…

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