Foreign portfolio investors bought Rs 13,397 crore in government securities under the fully accessible route (FAR) in October, the highest in seven months, data from Clearing Corporation of India (CCIL) showed. A stable rupee, prospects of a trade deal, favorable interest rate differential, and hopes for further monetary easing drove the inflows, said market participants. For comparison, FPIs bought securities worth Rs Rs 8,333 crore in September and altogether Rs 20,916 crore in Q2.
The FPI holding in government securities touched a record high at Rs 3.17 lakh crore in October.
“The increase in FPI inflows is mainly because yields have picked up over the months, making current levels more attractive than those of other emerging markets,” said Gaura Sengupta, chief economist, IDFC FIRST Bank.
With the latest Federal Open Market Committee on October 28-29 delivering another 25 basis points cut, bringing down the rates to 3.75-4%. Currently, 10-year US treasury is trading at 4.08% whereas Indian bond of similar tenure ended 6.53% on Friday, offering a spread of 245 bps.
Sengupta added: “The RBI has become more proactive in managing the rupee, leading to reduced volatility compared to previous months. This stability has also supported foreign investors, resulting in higher inflows during the month.”
On October 15, the RBI intervened aggressively to cut long positions built by traders. While RBI doesn’t target a specific level, its recent interventions stopped the rupee from crossing 89 and brought it back near 87, reinforcing confidence that the central bank will curb sharp depreciation. However, rupee returned to previous level due to month-end imported demand and hawkish policy by the US Federal Reserve.
“The domestic bond market outlook has improved after the October policy, hinting further room for possible easing. This has raised foreign investors’ hope for future monetary action. There is also expectation that the deal is in the final stages and will happen soon, which has also led to tearing of large depreciation fears that were there on rupee. These also supported higher inflows during the month,” said a treasury head at a foreign bank.