Foreign Inflows Into Indian G-Secs Soar Over $9 Billion in Just 7 Months, Surpassing 2023 Total

Foreign investors have poured over $9 billion into Indian government securities through the Fully Accessible Route (FAR) in the first seven months of this year. This surpasses the total of $8.21 billion invested throughout all of 2023, according to data analyzed from the Clearing Corporation of India Limited (CCIL).

Since the announcement in September 2023 that Indian sovereign debt would be included in the JP Morgan index, there has been a surge of $13.26 billion into these government securities via FAR.

With global expectations that the US Federal Reserve will begin cutting rates next month and the yield on the US 10-year bond falling below 4%, emerging market debts, including India’s, have become more attractive to foreign investors.

“Global sentiment is positive as markets anticipate a rate cut in the US, leading to lower US bond yields and making emerging market debt more appealing,” said Abhishek Upadhyay, Senior Economist of Fixed Income Strategy at ICICI Securities Primary Dealership.

Additionally, some foreign investment has come from investors without Indian registrations using proxy instruments like Total Return Swaps.

Recently, the Reserve Bank of India (RBI) announced it would exclude new 14-year and 30-year government securities from the FAR category, which currently has no restrictions on foreign investment. This change is expected to reduce the average maturity of Indian bonds in the JP Morgan index, which currently stands at 10.4 years, the highest among emerging markets.

Despite this exclusion, the market remains optimistic. “The market outlook is promising, especially with a potential Fed rate cut next month. In less bullish scenarios, there might be sell-offs, particularly for long-term bonds, which are harder for foreign investors to sell. The RBI’s decision seems to consider the long-term view by excluding these longer-term bonds,” said Vikas Jain, Head of Fixed Income – India at Bank of America.