Foreign portfolio investors (FPIs) have sold bonds worth $537 million in October so far.
In September, they had offloaded bonds worth $1.4 billion. Since January, they have pulled out close to $8 billion from the debt markets. That’s twice the $3.8 billion worth of equities sold.
The combined sales in the stock and bond markets have pressured the currency which has lost 13.6% against the dollar since January.
Again, as experts have pointed out, anxiety that the rupee would depreciate saw foreign funds selling bonds in September.
Net FPI outflows since August — debt and equity — stood at $4.9 billion and during this period the rupee depreciated by 7%.
In June, the Reserve Bank of India amended the rules for foreign investments in the bond markets.
The central bank eased investment norms for FPIs in debt securities by raising the cap on the investment in a government security from 20% to 30% of the outstanding stock of that security.
Further, the government is to review the removal of exposure limit of 20% of FPI’s corporate bond portfolio to a single corporate group and 50% to a single company.
Experts at Care Ratings believe FPI flows would continue to be volatile in the coming months.
The outflows could increase further with US interest rate hikes, tightening global liquidity and escalating trade disputes.
The retention of the repo rate in the recent credit policy would also not diminish the absolute differential in returns for FPIs between the US and domestic bonds.
The domestic macroeconomic concerns like weakness in currency, risks of inflation and trade deficit would also weigh in on inflows.