With Nifty trading at more than 20 times estimated earnings for fiscal 2025, India is currently the most expensive market in the world.
The unwinding of the yen carry trade on August 24 following the Bank of Japan’s interest rate hike also weighed on flows.
The slowdown coincided with growing fears of a possible US recession and disappointing economic data, which further exacerbated the market reaction, he added.
FPIs invested ₹26,565 crore in India in June, according to depository data.
While there is likely to be continued interest from FPIs in September, flows would be determined by a combination of domestic political stability, economic indicators, global interest rate movements, market valuations, sectoral preferences and attractiveness of the debt market, said Vipul Bhowar, Head of Listed Investments at Waterfield Advisors.
PFIs have opportunities to invest in much cheaper markets and hence their priority is markets other than India, said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
Interestingly, FPIs have been selling in the secondary market, where valuations are perceived to be high, and redirecting their investments towards the primary market, which offers relatively lower valuations.
Meanwhile, the FPIs were infused ₹17,960 crore in debt markets in August.
Experts believe that inclusion in global bond indices, attractive interest rates, stable economic growth, shift away from equities and favourable long-term outlook have been the key factors driving FPIs to invest in debt.
Debt investment is led by index inclusion flows. It was in October last year that JP Morgan announced the index inclusion, said Vishad Turakhia, CEO of Equirus Securities.
India’s inclusion in global bond indices and its attractive yields have attracted inflows, said Nimesh Chandan, CIO at Bajaj Finserv Asset Management Ltd.
Moreover, FPIs are buying in the debt market mainly because the Indian rupee (INR) has remained stable this year and this stability is expected to continue, Geojit’s Vijayakumar said.
With this FPI, equity investment has reached ₹42.885 crore and ₹1.08 lakh crore in the debt market in 2024 so far.
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