Overseas Investors Pump Rs 20,000 Crore in Indian Debt Market in May

Foreign investors have poured in a staggering Rs 19,772 crore ($3.35 billion) into the Indian debt market in May - the highest monthly inflow in about two and a half years, emboldened by hopes of economic recovery after the Narendra Modi-led Bhartiya Janata Party (BJP) stormed to power at the Centre.

Net inflow last month came after foreign institutional investors (FIIs) had pulled out net amount of about Rs 9,200 crore in April.

According to market experts, FIIs have pumped in huge investments in the Indian debt market on hopes that the new government will take steps to revive the economy and a favourable interest rate scenario.

As per data compiled by capital market regulator Securities and Exchange Board of India (Sebi), FIIs were gross buyers of debt securities worth Rs 40,478 crore in May, while they sold bonds to the tune of Rs 20,706 crore during the same time. This translates to a net inflow of Rs 19,772 crore ($3.35 billion) for the month.

This was the highest monthly net inflow since December 2011, when FIIs had made a net investment of Rs 21,774 crore in the debt market.

"...we believe that interest rates in such an environment could remain stable with a marginally downward bias. The current 10 year government security benchmark which is trading at 8.6 per cent could gradually edge lower in the coming weeks creating potential capital gains for investors," said Lakshmi Iyer, chief investor officer (debt) and head products at Kotak MF.

FIIs, who were net buyers in the debt market for four consecutive months, turned net sellers in April after they were restrained from investing in short-term securities like treasury bills.

The strong inflows in the recent months have taken the net investment by FIIs to Rs 47,000 crore ($7.4 billion) in Indian debt market so far this year.

"Strategically, we remain pretty comfortable with our bullish rates view and continue to look for opportunities to add to outright receive swaps or long bond positions," wrote Vivek Rajpal and Prashant Pande of the Asia rates strategy team of financial services firm Nomura in a report.

At present, there are over 1,700 registered FIIs in the country along with 6,450 sub-accounts.