FPIs Invest Over ₹5,200 Crore in FAR Bonds in a Week

India IPO

Updated July 06, 2024

Index-eligible bonds have attracted $10 billion from overseas investors since the inclusion was announced in September.

FPIs Invest Over ₹5,200 Crore in FAR Bonds in a Week

A week after the inclusion of select government securities in the JPMorgan global bond index, foreign investors have invested more than ₹5,200 crore ($627 million) into fully accessible route (FAR) bonds.

Initially, ₹1,655 crore was invested on the first day of inclusion on June 28. The pace then slowed, with foreign investors buying ₹428 crore in FAR bonds on Friday, according to data from the Clearing Corporation of India.

"Foreign investors had already made significant investments in eligible government securities prior to the inclusion. Going forward, foreign portfolio investor (FPI) investments in FAR securities will steadily increase each month," said Sujit Kumar, chief economist at the National Bank of Financing Infrastructure and Development.

On Monday, FPIs bought ₹1,625 crore in FAR bonds. However, there was an outflow of ₹92 crore on Tuesday. Investments resumed with ₹397 crore on Wednesday and ₹1,227 crore on Thursday. As of July 5, overseas investors held a total of ₹1.9 trillion in FAR bonds.

Bond yields have slightly moderated over the past couple of months due to these inflows. In June, the 10-year yield ranged from 6.90% to 7.03%, compared to 6.97% to 7.14% in May. On Friday, the benchmark 10-year bond yield closed at 6.99%.

"Following the much-anticipated inclusion in the JPMorgan index, FPI inflow is expected to increase, likely pushing government bond yields down," said Jahnavi Prabhakar, an economist with Bank of Baroda. She noted that the focus will now shift to the Budget, which could influence bond yield movements.

A fiscally prudent Budget would be positive for yields, and any announcements about reducing the government borrowing program will also be closely watched.

JPMorgan announced last September that Indian government bonds would be added to its Global Bond Index Emerging Markets Index (GBI-EM) starting June 28. Currently, India has a 1% weight in the index, with planned monthly increases until March 2025. These global bond index securities have no foreign investment limits.

As India's weight in the index increases, the domestic bond market is expected to attract nearly $30 billion in inflows over the next 10 months.