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19 Nov 2024
Foreign portfolio investors (FPIs) have invested over $1 billion (Rs 8,740 crore) in fully accessible route (FAR) bonds within just 19 days since government securities were added to the JPMorgan global bond index on June 28.
Data from the Clearing Corporation of India shows that overseas investors have contributed more than $1.05 billion to index-eligible bonds since June 28. Experts predict that with a softening trend in bond yields, these inflows will likely continue to rise rapidly in the coming months.
"We've observed front-loaded inflows by overseas investors," said Dipanwita Mazumdar, an economist at Bank of Baroda. She expects FAR bond purchases in July to exceed the $1.8 billion inflows seen in June. Mazumdar also noted that bond yields are anticipated to decrease in the coming months, further attracting inflows. The benchmark security, due to its higher liquidity, has the highest FPI utilisation rate, with the former benchmark 7.18% 2033 bond leading in FPI ownership at 12.16%.
Bond yields have slightly eased in recent months, with the 10-year yield trading between 6.90%-7.03% in June, down from 6.97%-7.14% in May. On Tuesday, the 10-year bond yield closed at 6.963%.
Since the announcement of bond inclusion in September last year, foreign investors have invested over $11 billion into index-eligible bonds. Excluding June 28, total FPI inflows in June were $1.8 billion.
As of July 16, overseas investors held Rs 1.94 trillion in FAR bonds. Recent data shows total FPI investment in Indian bonds since June 28 is $1.12 billion (Rs 9,364 crore).
The bond market's focus will now shift towards the upcoming Budget, which will influence yield movements. Experts suggest a fiscally-prudent Budget could positively impact yields.
Currently, India holds a 1% weight in the index, with planned increases each month until March 2025. Securities in global bond indices have no foreign investment limit. Analysts predict that as India's weight in the index gradually increases, the domestic bond market could attract nearly $30 billion in inflows over the next 10 months.
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