Foreign buying in JPM included bonds tops ₹1 lakh cr in 10 months
MUMBAI: Foreign investments in Indian government bonds that do not have any investment limit accelerated in the last few days, with the outlook for local debt remaining strong on bets of fiscal consolidation, interest rate cuts and favourable demandsupply dynamics.
Foreign investors net bought bonds under the Fully Accessible Route (FAR), most of which are a part of JPMorgan’s emerging market debt index, worth ₹1.03 lakh crore ($12.3 billion) in the last 10 months since the inclusion was announced, according to Clearing Corp of India.
These investors purchased papers worth ₹7,200 crore on a net basis in the last seven sessions, up from ₹3,800 crore a year earlier. Positive demandsupply dynamics, controlled domestic inflation and expectations that the interest rate cycle has peaked, both in India and globally, is favouring domestic government bonds, said Parul Mittal Sinha, India head of financial markets at Standard Chartered Bank. India will announce its federal budget on Tuesday amid hopes of a downward revision in the fiscal deficit target and gross borrowing from February’s interim budget figures.
Higher spending can be funded through surplus transfers from the Reserve Bank of India and improved tax collections. Clearer signs of inflation being under control and firm commitment to fiscal consolidation should encourage more investments, said Edward Ng, senior portfolio manager, Asian fixed income, Nikko Asset Management last week.
Indian bonds were included in the JPMorgan emerging market debt index on June 28, and even though flows slowed down in the beginning, they have now picked up pace. “As index weightage increases, we anticipate inflows will rise. Positive real yields, stable currency, relatively high carry, and expectations of rate cuts, will see long-term foreign investors remain invested for an extended period,” Lei Zhu, head of Asian fixed income at Fidelity International, said last week.
Another factor that continues to aid investments is a stable currency. Although the rupee slipped to a record low in the day, it continues to be among the least volatile Asian currencies, making bond investments appealing.