Foreign portfolio investors (FPI) continue to invest in the Indian bond markets after the Lok Sabha election results as they expect favourable economic reforms from the new government. FPIs invested $786.72 million into bonds in the first four trading sessions in June, taking the aggregate inflows to over $1.5 billion after the BJP’s win on May 23.
The benchmark government bond — 7.26% yielding notes maturing in 2029 – rose 10 bps to close at 7.07% on Monday, as the Brent crude oil prices rose to $63.29 bbl (per barrel) from $62.63 bbl the previous day.
The 10-year bond yield fell below 7% for the first time in 18 months and touched a low of 6.93% on June 6 after the Reserve Bank of India (RBI) announced a 25 bps cut in the repo rate, as anticipated by most of the market experts amid the worsening financial situation. The RBI also shifted its stance to accommodative, signaling no more rate hikes soon.
Rupee closed 19 paisa lower at Rs 69.65 on Monday due to the rise in crude oil prices.
“With the rupee being stable against the dollar and with the fear of inflation going away, we can expect the steady inflows in the upcoming sessions also,” said Ajay Manglunia, MD and head – institutional fixed income, JM Financial. US-China trade tensions could influence yields, he added. Bond dealers expect another 10-15 bps drop in yields if the favourable situations persist.
In May, the total inflow from foreign investors was $537 million, while in April, there was an outflow of $1.5 billion from the Indian debt markets. A day after the RBI monetary policy, global funds invested $316.48 million on Friday, which is the highest FPI inflow in debts in a single day in the last 16 trading sessions.