A week after select government securities were included in JPMorgan global bond index, foreign investors have poured more than Rs 5,200 crore ($627 million) into fully accessible route (FAR) bonds.
After attracting Rs 1,655 crore on the first day of inclusion on June 28, the pace of inflows has slowed down, with overseas investors buying Rs 428 crore in FAR bonds on Friday, according to the Clearing Corporation of India data.
“Foreign investors have already made significant investments in eligible government securities in the run-up to the inclusion. Going forward, investments by foreign portfolio investors in FAR securities will gradually increase every month,” Sujit Kumar, chief economist, National Bank of Financing Infrastructure and Development, told FE.
Index-eligible bonds have attracted $10 billion from overseas investors since the inclusion was announced in September.
On Monday, foreign investors bought Rs 1,625 crore FAR bonds while on Tuesday, these securities witnessed outflow of Rs 92 crore. Following that, foreigners invested Rs 397 crore on Wednesday and Rs 1,227 crore on Thursday. Overseas investors held a total of Rs 1.9 trillion FAR bonds as of July 5.
Bond yields have marginally moderated over the past couple of months due to increased inflows. The 10-year yield traded in the range of 6.90%-7.03% in June, compared with 6.97%-7.14% in May. On Friday, yields on the benchmark 10-year bond closed at 6.99%.
“Following the much-anticipated inclusion in the JPMorgan index, FPI inflow is expected to increase and this is likely to push yields on government bonds down,” said Jahnavi Prabhakar, economist with Bank of Baroda. “The focus will now shift towards the Budget which holds further cues to the movement of the bond yield. A fiscally-prudent Budget will be positive for the yields,” Prabhakar said.
Any announcement pertaining to curtailing down of the government borrowing programme will also be closely monitored, she said.
JPMorgan 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) from June 28.
Currently, India carries 1% weight in the index, with planned incremental increases each month till March 2025. Securities included in global bond indices do not have any foreign investment limit.
As the weight of Indian securities rises gradually in the index, the domestic bond market is likely to attract nearly $30-billion inflows over the next 10 months.