• Ms. Priya Malhotra

In the recent past, emerging markets have seen $17.8 billion of non-resident portfolios in June 2017, marking the seventh straight month of positive foreign inflows to this asset class, the longest chain since late 2014 as per a banking survey conducted by International Institute of Finance (IIF). Regionally emerging markets in Asia grabbed the lion’s share of all inflows in June with dominance of India grabbing the maximum bite of foreign inflows in both equity and debt. While FII/ FPI have been active in Debt segment of Indian Financial Markets since 1992-93 when country went through major economic and financial liberalisation, it is essentially now that these players have started showing more interest in the Debt Markets compared to Equity segment. While Foreign Institutional Investors do lend a support to the flourishing Capital Markets, it is also no secret that such inflows are in the nature of “flight capital” and a sudden withdrawal of the same can give a blow to the financial markets and overall macro-economic situation. Hence, an in-depth understanding of the determinants of such inflows assumes paramount importance, as also an in-depth research backed by analytics can help in substantial prognosis at the policy level. There are various studies relating to the determinants of international capital flows in any economy. Factors determining the movement of foreign funds can be classified as “Push factors” and “Pull factors”. Push factors are the external environment and lack of investment opportunity available in the country of origin, while Pull factors are the factors determining attractiveness of the foreign destination in terms of stability and better returns. In Indian context, factors like low interest rates in the United States, government size, openness, lower corruption have been cited as the important determinants of inward foreign investment both for short term and long term. India embarked on the path of opening its economy to global capital flows following the balance of payments crisis in 1991. Prior to the crisis, balance of payments was primarily financed by external assistance & drawdown of forex reserves and private investment inflows into the economy were not encouraged. Foreign inflows were primarily through official transfers and in the 1980s when these concessional transfers evaporated, private capital was accessed through costly External Commercial Borrowings (ECBs) and NRI Deposits. Indian economy has experienced significant increase in cross-border inflows since the start of reform process in 1991 when economy witnessed major economic reforms popularly known as the LPG reforms. The major constituents of foreign capital flows to India are Foreign Investments by Foreign Institutional Investors (FIIs) comprising both Foreign Direct Investment (FDI) and Portfolio Investment (FPI), Short Term debt, External Commercial Borrowings and NRI Deposits. This paper examines the determinants of foreign inflows to Indian Debt Market in context of portfolio investments. Recently, the inflows in Debt segment have outpaced the participation by these entities in the Equity Market (in percentage terms). Statistical tools like Correlation, Causality have been utilised to establish the hypothesis and draw relevant conclusions. Specific variables like Global Economic Crisis – US Subprime and Euro crisis along with other systemic variables have also been tested for implicit and explicit impact on the FII activity in Debt segment.

Foreign Portfolio Investment, debt market, correlation, determinants, Quantitative easing JEL classification: G 15, G 23

"Buoyancy in Indian Debt Markets: FII activity and its determinants", International Journal of Emerging Technologies and Innovative Research (www.jetir.org), ISSN:2349-5162, Vol.6, Issue 3, page no.49-64, March-2019, Available :http://www.jetir.org/papers/JETIR1903P07.pdf

"Buoyancy in Indian Debt Markets: FII activity and its determinants", International Journal of Emerging Technologies and Innovative Research (www.jetir.org | UGC and issn Approved), ISSN:2349-5162, Vol.6, Issue 3, page no. pp49-64, March-2019, Available at : http://www.jetir.org/papers/JETIR1903P07.pdf