Foreigners buy $10 billion of index-bound Indian bonds since JPM inclusion announcement

By Thomson Reuters Jun 19, 2024 | 8:01 AM

By Dharamraj Dhutia

MUMBAI (Reuters) – Foreign investors have bought more than $10 billion of Indian government bonds that will be included in a widely-followed JPMorgan debt index on June 28, taking their ownership of such papers to a record high.

In the nine months since JPMorgan said India’s sovereign debt will be included in its emerging market debt index, foreign investors have bought 841 billion rupees ($10.08 billion) of eligible bonds on a net basis. More chunky inflows are expected at the end of this month.

Overseas buyers now own 1.79 trillion rupees of Indian bonds included in the so-called fully accessible route, which allows unfettered foreign purchases. A majority of these notes will be a part of the JPM index.

Foreigners’ ownership of these Indian bonds has risen to an all-time high of 4.45% of total from 2.77% before the inclusion announcement.

Their share of ownership of all outstanding government bonds remains low at 2.4%, below the peak of 4.6% in 2017.

Foreign investors have been shifting from shorter duration bonds to longer ones with maturities of nine years and above.

Western Asset Management, which manages around $250 million of debt under its Asian opportunities Fund, is overweight on longer duration Indian government bonds, Wontae Kim, a research analyst said last month.

The government’s emphasis on fiscal consolidation and inflation remaining within the central bank’s targeted range have been major positives, he said.

Increased foreign activity has pushed up trading volumes in the government bond market, with three of the nine months through May witnessing volumes of more than 10 trillion rupees, a first in four years. Traders expect volumes to surpass the 10-trillion-rupee milestone in June.

India’s strong macroeconomic fundamentals and stable currency outlook have encouraged investors to buy bonds without hedging their forex exposure.

“Unhedged flows are all about rupee stability, and if we hedge, the investment is not that attractive. The Reserve Bank of India has kept the volatility compressed, incentivising unhedged flows. There is not much incentive for the RBI to change this pattern,” Adarsh Sinha, co-head, Asia FX & rates strategy at Bank of America said.

($1 = 83.3840 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Mrigank Dhaniwala)