New Delhi: Foreign institutional investors (FIIs) have shown a clear preference for debt instruments over equities during the past one year, according to a recent report by the State Bank of India (SBI).
The report highlighted that foreign portfolio investors (FPIs) have been cautious on emerging markets in general as volatility continues to affect global capital flows.
Despite this uncertainty, FPI inflows into various debt segments have remained consistently positive, reflecting strong confidence in the Government of India’s macroeconomic fundamentals and ongoing reforms. It stated “FII Inflows indicate preference to Debt over Equities”.
The latest monthly data on FII flows shows significant contrasts between equity and debt investments. In September 2024, total FII inflows stood at USD 11,162 million, one of the strongest in the period.
This surge was mainly driven by USD 6,890 million entering the equity segment, along with healthy contributions from Debt FAR and mutual fund (MF) categories. However, this positive momentum did not last long.
By October 2024, the trend reversed sharply. Total outflows touched -11,195 million, primarily due to heavy selling in equities. This shift highlighted the rising uncertainty around riskier assets and the growing inclination of FIIs to move away from equities when market conditions weaken.
Toward the end of 2024, flows showed signs of stabilisation. In December, total inflows recovered to USD 3,070 million. This included USD 1,828 million coming from equities, supported by steady inflows into debt categories.
But the improvement was short-lived, as January 2025 saw another major outflow of -8,963 million, again led by equity selling.
Throughout 2025, debt flows, particularly in Debt FAR and traditional debt–remained more stable compared to equities. In March 2025, total FII inflows reached USD 3,845 million, with USD 3,340 million coming from Debt FAR alone.
This clearly indicated a growing preference for safer, fixed-income assets in an uncertain global environment.
Even in months when total flows turned negative, such as April (-2,335 million) and June (-904 million), debt investments helped soften the overall impact on the numbers.
The strongest inflows of 2025 so far were recorded in October, at USD 4,031 million. Both equities (USD 1,656 million) and Debt FAR (USD 1,713 million) contributed significantly during the month.
overall, the data showed a pronounced tilt toward debt investments as FIIs increasingly opt for stability and predictable returns over the volatility associated with equities.
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