FPI Caution: Middle East Tensions Impact FAR Investments

The investment pattern of Foreign Portfolio Investors (FPI) in Fully Accessible Route (FAR) government securities has shifted, reflecting a decline by approximately Rs 4,634 crore since the Middle East conflict began. This cautious stance appears amid rising crude oil prices, softened rupee, and climbing bond yields.

Data from the Clearing Corporation of India Ltd (CCIL) revealed that FPI holdings in FAR securities stood at Rs 3.26 lakh crore on the latest count, slipping from Rs 3.31 lakh crore as of February 27, prior to the onset of unrest. Heightened global market tensions, fuelled by escalating Middle Eastern conflicts, increased crude oil prices, and emerging market volatility, are seen influencing these shifts.

Brent crude oil surpassed USD 100 per barrel, now priced around USD 108, amplifying inflation concerns and India's balance of payments. Concurrently, the rupee sharply weakened past 92 against the US dollar, with the 10-year government bond yield rising to 6.7532%. Market observers suggest that the confluence of higher oil prices and currency depreciation has instigated this conservative stance by foreign investors on Indian sovereign debt.