2 weeks Ago
Mumbai: Three months after India's inclusion in a JP Morgan bond index , foreign portfolio investment in fully accessible sovereign bonds has increased by around $7.5 billion, a quantum that is on the higher range of market expectations, and bankers expect a stronger pace going forward. From the official closing figures on June 27 to the numbers on September 30, FPI investment in fully accessible Indian government bonds has risen by ₹62,919 crore, or around $7.
5 billion, to ₹2.5 lakh crore. The inclusion of sovereign bonds in a JP Morgan Emerging Market Index commenced from June 28.
Bonds under the Fully Accessible Route (FAR) category are the securities that are included on the index. The current numbers translate into a monthly flow of around $2.5 billion, which is on the upper end of broad market expectations of a monthly flow of $2-2.
5 billion hitting the market due to index inclusion. Given the recent commencement of a US monetary easing cycle - which increases the appeal of emerging market assets for global investors - that flow is expected to rise in the next three months. "We expect FPI inflows to average about $2.
5-3 billion on a monthly basis this quarter. The inflows will be driven by investors correcting their underweight bias in Asian EMs and higher investor allocation to EMs in general, on global rate easing cycle," said Parul Mittal Sinha, head - financial markets, India and South Asia, Standard Chartered Bank "We expect robust inflows in FAR securities from foreign investors both in the cash as well as TRS (total return swap) format and continue to see good interest from index trackers, sovereign wealth funds etc.," she said.
Firm foreign buying interest has helped bring down domestic government bond yields, with yield on the 10-year benchmark sovereign paper falling 26 basis points from 6.99% on June 27 to 6.73% on Tuesday.
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40% by the end of the current financial year. The steady influx of foreign funds - the JP Morgan index inclusion process is spread over 10 months - also provides a cushion for India's external balances at a time when a slower momentum of goods exports has pushed India's current account balance into a deficit. (You can now subscribe to our ETMarkets WhatsApp channel ).
