Foreigners flocking to Indian bonds make a splash across markets

Apr1,2024


The cash flowing into India with its jurisdictions included in major global bond indices is already reshaping markets in a country that has long been keen to insulate itself from hot money flows.

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foreign investors About 780 billion rupees ($9.4 billion) have been invested in eligible sovereign bonds since JPMorgan Chase & Co's historic announcement in September and the ownership list has started to climb. Corporate bonds are outperforming their peers, foreign exchange reserves The rupee hit a record high and the rupee has shrugged off the effects of a broader strengthening dollar.

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Here are some charts showing the state of play in the Indian markets ahead of the major index changes at the end of June.

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“This is an important event. “India's long-awaited inclusion in the index should open the door to increased participation from foreign investors,” said Chidu Narayanan, head of Asia-Pacific macro strategy at Wells Fargo & Co. indian bonds He said there are preparations to support the rupee by the middle of next year.
The influx of funds has helped Indian fully accessible route bonds, abbreviated as FAR and set to be included in the gauge, have returned 2.76% this year in dollar terms, data compiled by Bloomberg show. have helped. They have outperformed a global index of emerging sovereign debt as well as a gauge of corporate and sovereign notes in emerging Asia.

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The inflows have helped make them one of the best performers in local currency emerging market government debt in 2024.
“You are seeing somewhat of a race ahead ahead of the June deadline,” said Radhika Rao, senior economist at DBS Group Holdings Ltd. The bulk of the inflows are still to come, which we believe will come once the absorption begins. And when the JP Morgan index shows a full 10% weighting to India at the end of the year.

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One consequence of the large influx has been an increase in interference reserve Bank of India, which is buying incoming dollar inflows, resulting in its foreign reserves rising to a record $642.5 billion. The objective of this intervention is broadly to protect the rupee from volatile movements.
The Reserve Bank of India has stepped up purchases in recent weeks and has bought a total of $20 billion since the beginning of February, according to Bloomberg Economics.

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Corporate bonds have also benefited from inflows into government debt as corporate bonds are priced substantially lower than sovereign notes. Yields on top-rated 10-year notes have fallen about 30 basis points since the index was announced.
Bloomberg Index Services Ltd will also include some Indian bonds in its emerging markets local currency index from next year. Bloomberg LP is the parent company of Bloomberg Index Services Ltd., which manages indices competing with other service providers.



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