After being net sellers of G-Secs for the first time in November since India’s inclusion in the JP Morgan index, foreign portfolio investors (FPIs) are buying again.
FPIs were net buyers of Rs 1,443 crore on Thursday, according to data from the Clearing Corporation of India. In fact, both offshore and onshore investors are betting on a cut in the cash reserve ratio (CRR) by 50 basis points, which will improve liquidity significantly.
Since the beginning of December, foreign investors added Rs 7,916 crore government bonds under fully accessible route (FAR) in just last four days, more than the total outflows in November.
In November, foreign outflows were primarily driven by narrowing interest rate differential between the benchmark 10-year government bond and the benchmark 10-year US Treasury yield, which rose as Donald Trump’s victory led to apprehensions of a shallow rate cut cycle by the US Federal Reserve.
Meanwhile, the Monetary Policy meeting, which began on Wednesday, will conclude on Friday with the six-member committee, led by governor Shaktikanta Das, announcing the outcome.
“Looking at current scenarios, it is highly possible for the RBI to cut rates. Although some are not expecting it, I am part of a faction that sees a rate cut, and has taken positions already,” said a trader with a foreign bank. Driven by these bets, the yield on the 10-year benchmark fell to nearly three-year low on Wednesday, hinting at an easing in policy.
“There is an euphoria in the market. Market is confident of RBI announcing some positive outlook. Hence, no trader wants to miss out on making more money,” said a trader with a state-owned bank.
A wide section of the market expects a tweak in CRR, which would release up to Rs 1.2 lakh crore in the banking system, leading to a further decline in shorter-duration bond yields. Anticipating this, FPIs bought gilts between maturities of 5 and 14 years, said market participants.
“There is a lot of speculation about what will MPC do. The market looks positive right now and FPIs want to participate in the movement. But the real flows will come only once Trump takes oath,” said Vikas Goel, MD and CEO, PNB Gilts.