The ownership of foreign portfolio investors (FPI) in government securities (G-Sec) under the fully accessible route (FAR) has nearly doubled since the inclusion of G-Sec into the JPMorgan Chase & Co.’s emerging market index was announced in September last year. Investment by FPIs in government securities under the FAR has surged 90% to Rs 1.83 trillion as of June 26, from Rs 96,661 crore at the end of September last year, according to the Clearing Corporation of India data.
Among the securities, the 7.18% GS 2033 paper has seen the highest investment from foreign investors. The FPI investment in the paper has surged to Rs 24,000 crore as of June 27, from Rs 1,719 crore at the end of September last year.
“The 7.18% GS 2033 security is the old benchmark and it is the most liquid paper,” V Ramachandra Reddy, head of treasury, Karur Vysya Bank, told FE. “Liquid papers will continue to see high demand from foreign investors.”
Other securities which have lured foreign funds are 5.63% GS 2026, 7.18% GS 2037 and 7.06% GS 2028 where FPI investments stand at Rs 12,265 crore, Rs 11,755 crore and Rs 11,153 crore, respectively.
JP Morgan Chase & Co announced in September last year that it would add Indian government bonds to its benchmark Global Bond Index Emerging Markets Index (GBI-EM). The inclusion will occur over a period of 10 months starting Friday (June 28) through to March 31, 2025. India will have a 1% weight in the index, which will gradually rise to 10% over a 10-month period.
Experts do not expect any surge in inflows on the very first day of inclusion and say it will be gradual.
“Bond inclusion will further increase the foreign ownership of government bonds,” Piyush Agarwal, senior managing director, head – corporate and institutional banking (India), Mizuho Bank, told FE. “The inflation print which is getting very close to the RBI target rate of 4% may further pave way for policy action in near future. Policy action and index inclusion could augur well for overall bond yields,” he said.
Index-eligible bonds have attracted $10 billion since the inclusion was announced. Securities included in global bond indices do not have any foreign investment limits. India will be the 25th market to enter the GBI-EM global series of indices, with 27 bonds under the FAR being eligible for inclusion.
