After a sedate start, inflows into fully accessible route (FAR) bonds have picked up pace. According to data from the Clearing Corporation of India, foreign portfolio investors (FPIs) have infused $6.6 billion into index-eligible bonds since June 28, when government securities were included in JPMorgan’s emerging markets index.
“In our interactions with FPIs, we continue to see significant interest in G-Secs because of higher dollar returns compared to other emerging markets,” said Aditya Mehta, CEO of Harmoney, a Y Combinator-backed electronic bond trading platform having trade volume of Rs 5,000 crore. “FAR has turned out to be a great initiative by the Reserve Bank of India (RBI). Now, the Securities and Exchange Board of India is also working on speeding up custody processes, which will further accelerate flows into the country.”
Data show that foreign investors remain bullish, with FAR securities experiencing net inflows on most days. Since June 28, net outflows occurred on only seven trading days. The highest single-day inflow was recorded on August 30, when FPIs infused $847 million. Overseas investors held a total of Rs 1.94 lakh crore of FAR bonds as of September 17.
Strong inflows have dispelled concerns raised by some investors after the RBI decided to exclude certain securities from FAR bonds. In July, the central bank announced the exclusion of all new 14-year and 30-year G-Secs from the FAR bond suite. There were concerns that this move could hurt the market sentiment and disrupt inflows of foreign funds.
“Inflows initially were less than expected, but now they are increasing in line with expectations. The strong momentum indicates that inflows could be more than the earlier projection of $30 billion,” said the head of treasury of a public sector bank.
Analysts have projected that FAR bonds are likely to attract $25-30 billion by March as the weight of Indian securities rises gradually in the index. Securities included in global bond indices do not have any foreign investment limits.
Bond yields have moderated over the past couple of months due to increased inflows. The yield on 10-year benchmark bonds was in the range of 6.97%- 7.14% in May. Last month, the yield touched the 6.85% mark, the lowest in over two years, given the favourable demand-supply dynamics. On Tuesday, the yield closed at 6.78%, compared with 6.76% on Monday.