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 An important feature of the FPI flows in January this year was the divergent trends in equity and debt flows. While equity saw net selling of Rs 25,734 crore, debt saw net buying of Rs 19,836 crore. These figures are inclusive of cash market and primary market and others, says V.K. Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

There are three reasons for this trend. One, the US bond yields rose to around 4.16 per cent in January from around 3.88 per cent in December 2023. This prompted outflows from equity to high yielding US bonds, he said.

Two, Indian equity became the most expensive in the world (Nifty trading at PE of around 21 based on FY24 estimated earnings). This triggered equity selling in India.

Third, some FPIs are doing the front running in the Indian bond market anticipating flows into the Indian bond market after the inclusion of India in the JP Morgan Emerging Market Bond Fund, he added.

Going forward, FPI inflows into the equity market will depend on the trends in the US bond yields and the equity market trends globally as well as in India. Since the US bond yields have again corrected sharply, FPIs are unlikely to sell in large volume in February. They may even turn buyers. The inflows into the debt market are likely to continue, he added.