Foreign investors have flocked to Indian bonds following the inclusion of select government securities in the JPMorgan Global Bond Index. Over the past week, overseas investors have invested more than Rs 5,200 crore ($627 million) into fully accessible route (FAR) bonds, reflecting a surge in interest in the Indian debt market.
The initial buying spree was particularly robust, with investors pouring Rs 1,655 crore into FAR bonds on the first day of inclusion, June 28th. While the pace of inflows has moderated since then, with Rs 428 crore invested on Friday, the overall trend remains positive.
Experts believe this is just the beginning of a sustained investment push. “Foreign investors have already made significant investments in eligible government securities in the run-up to the inclusion,” said Sujit Kumar, chief economist at the National Bank of Financing Infrastructure and Development. “Going forward, investments by foreign portfolio investors in FAR securities will gradually increase every month,” he told Financial Express.
The inclusion in the JPMorgan index, announced last September, has been a significant development for the Indian bond market. Index-eligible bonds have attracted a staggering $10 billion from overseas investors since the announcement.
This newfound foreign interest is reflected in marginally moderated bond yields. The 10-year yield, a key benchmark, traded in the range of 6.90%-7.03% in June, compared with 6.97%-7.14% in May. On Friday, yields on the 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.
Looking ahead, the upcoming Union Budget will be a major factor influencing bond yields. “A fiscally-prudent Budget will be positive for the yields,” Prabhakar said. Investors will be closely watching for any announcements regarding the government’s borrowing program, as this can significantly impact market sentiment.
JPMorgan Chase & Co’s decision to add Indian government bonds to its GBI-EM Index is a significant step forward for India’s integration into the global financial system. With the index weight of Indian securities gradually rising until March 2025, the domestic bond market is expected to attract nearly $30 billion in inflows over the next ten months. This foreign investment is likely to bring greater stability and liquidity to the Indian bond market, fostering its long-term growth and development.
