By Manish M Suvarna

Foreign Portfolio Investors (FPIs) have invested in debt securities to the tune of $571.65 million in January due to rising yields in the Indian market. Yields in India have turned more attractive compared to equities for foreign investors. An added bonus would also be the possible inclusion of government securities in the global bond index.

Inflows turned positive in January after a heavy sell-off by overseas investors in December due to quarter-end and last month of the calendar year. According to NSDL’s data, FPIs bought debt worth $571.65 million in January, as against net sales of $1.6 billion in December.

“Long Bond yields have risen in India over the last couple of months, so some FPIs might be participating due to higher yields. Also, there is an expectation that the Union Budget to be announced tomorrow (Tuesday) may announce tweak in the tax rules to make it easier for the Indian government securities to be listed in global benchmark indices, which might have led to increased FPI participation in anticipation of this,” said Puneet Pal, head – fixed income, PGIM India Mutual Fund.

Yields on government securities have risen very sharply in January due to global factors and internationally, too, yields have increased, but higher returns from Indian securities attracted foreign investors in India, leading to rise in investment by FPIs, dealers said.

Domestic yields have risen more than 15 basis points in the past few days, driven largely by a sharp rise in Brent crude oil prices in the international market and an uptick in US Treasury yields on the expectation that Fed will hike rates more aggressively than expected.

Brent crude oil prices have risen very sharply in January, owing to supply concerns and political tension in Eastern Europe and the Middle East. Currently, Brent crude oil was trading at $91 per barrel in the international market.

Market participants said the yield on Indian bonds could have risen further in the absence of FPIs. It got a cushion from these investors and further rise has been curbed. “We have to see the larger picture here. The FPI buying has cushioned the fall, in the absence of which the yields would have spiked further,” said Ajay Manglunia, MD and head -institutional fixed income at JM Financial.