FPI debt inflows at 26-month high in Nov on Fed rate pause

livemint.com:

MUMBAI : FPI net inflows into Indian bonds in November have hit the highest level in 26 months, thanks to higher allocations by foreign investors to emerging markets like India in anticipation of US interest rates having peaked and buying by non-index funds ahead of the country’s inclusion in JP Morgan’s Global Bond Index - Emerging Markets next year. Analysts expect the flows to remain strong, though volatile.

FPIs have in the month through 24 November invested a net ₹12,399 crore in Indian debt, the highest quantum since September 2021, when they pumped in ₹12,804 crore. Net inflows in November account for almost 28% of total ₹44,438 crore invested so far this fiscal, the highest in six years.

Their investments are primarily into central government and corporate bonds, shows NSDL data. Indeed, the depository data shows that utilisation limits by general category of foreign investors has increased to 24.22% or ₹64,895 crore of the upper limit as of 24 November from 23.1% or ₹61,880 crore as of 31 October.

In the case of corporate bonds also they have increased their buying a tad to 15.43% or ₹1.03 trillion as of 24 November from 15.29% or ₹1.02 trillion on 31 October. The increased buying coincides with the US Fed leaving its benchmark Fed Funds Rate unchanged at 5.25% on 1 November for a second straight policy meeting and data this month which shows that retail inflation in US cooled off to 3.24% in October from 3.7% a month ago and was below the historic average of 3.28%.

Economists and market experts view the easing of US inflation as a lagged effect of 11 consecutive rate hikes by the Fed from March last year to July 2023. They believe that moderating retail inflation would pre-empt the Fed from tightening rates