Foreign portfolio investors (FPIs) have invested $1.2 billion into Indian bond markets in the past nine trading sessions since May 24, a day after the Narendra Modi-led BJP government won a majority in Parliament, signaling a global positive sentiment against the political stability of the country.
The benchmark government bond —7.26% yielding notes maturing in 2029 — rose by 4 basis points to close at 6.97% on Friday on account of an increase in Brent crude oil prices. However, benchmark yields since the past week have been at their lowest levels since November 2017. The Brent on Friday traded at $62.63 bbl (per barrel), a 1.56% increase over Thursday.
Dealers believe bond yields can drop further by nearly 10-15 bps as situations have turned favourable for bond markets to flourish. “Crude oil prices being at a comfortable level and with rate cuts being off the table in India and in the US, bond yields are expected to fall to levels of 6.8% in the short-term period of one to two months,” said Ajay Manglunia, MD and Head-institutional fixed income, JM Financial.
Global funds invested $140 million into Indian debt on Thursday, when the Reserve Bank of India announced a 25 basis point (bps) rate cut to 5.75% and shifted its stance to ‘accommodative’, signaling no more rate hikes further. In June so far, FPIs have bought nearly $500 million worth of debt on the back of an inflow of $537 million in May.
The quota for FPI investment in gilts is Rs 2.34 lakh crore as on June 7, according to CCIL data; the utilisation as was 69.46% for gilts. The NSDL data shows that as of June 6, the limit for FPI investments in corporate bonds is Rs 3.03 lakh crore. The utilised level is 68.61%. FPIs invest in various debt market instruments such as government bonds (G-secs), state development loans and corporate bonds, but with prescribed limits and restrictions by the central bank.