Investment by foreign portfolio investors (FPIs) in fully accessible route (FAR) bonds has crossed the $1-billion (Rs 8,740 crore) mark in just 19 days after government securities were included in the JPMorgan global bond index on June 28.
Overseas investors have poured over $1.05 billion into index-eligible bonds since June 28, according to data from the Clearing Corporation of India. With the softening bias in bond yield, experts expect inflows to increase at an accelerated pace in the coming months.
“We have seen front-loading of inflows by overseas investors. FAR bond purchases in July may be higher than $1.8-billion inflows seen in the previous month,” Dipanwita Mazumdar, an economist with Bank of Baroda, told FE. “Bond yields are likely to soften in the coming months, which will further boost inflows.”
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In terms of the FPI utilisation rate, the benchmark security has the highest concentration due to higher liquidity, Mazumdar said. Former benchmark 7.18% 2033 bond is on top in terms of FPI ownership, with overseas investors owning 12.16%.
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 Tuesday, yields on the benchmark 10-year bond closed at 6.963%.
In the run-up to bond inclusion, foreign investors invested more than $11 billion into index-eligible bonds since the related announcement was made in September last year. Total FPI inflows in the previous month, excluding June 28, stood at $1.8 billion.
Overseas investors held a total of Rs 1.94-trillion FAR bonds as of July 16. Total FPI investment in Indian bonds since June 28 stands at $1.12 billion (Rs 9,364 crore) as of July 16, showed recent Clearing Corporation of India data.
The focus of the bond market will shift towards the Budget which holds further cues to the yield movement. A fiscally-prudent Budget will be positive for yields, say experts.
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. Analysts say as the weight of Indian securities gradually rises in the index, the domestic bond market is likely to attract nearly $30-billion inflows over the next 10 months.
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