Foreign flows in G-secs top $1 billion in two weeks

Including June 28, the day that fully accessible Indian government bonds were included in JP Morgan’s emerging market index, foreign portfolio investment (FPI) in such securities has increased by ₹8,738.83 crore, or $1.04 billion, an analysis of the latest data released by the Clearing Corporation of India (CCIL) showed.

Since September 22, 2023 — the day JP Morgan made the announcement — to June 27, 2024, FPI investment in fully accessible Indian bonds had shot up by ₹90,052 crore ($10.7 billion).

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Given the robust foreign flows that hit the bond market in the run-up to the event, traders have speculated about the quantum of fresh investment that may incrementally accrue after the index inclusion. A portion of the overseas funds that have come in also include investments through proxy instruments, such as Total Return Swaps.

“Our expectation for the next few months is that on average, the inflows will be around $2 billion (or around ₹16,700 crore) a month. It could be a little more or alittle less depending on how some of the active inflows play out. Ithink we’re on track in terms of the inflow that should be coming in,” said Aditya Bagree, head, markets, Citi — India & Indian Subcontinent.

“Initially, there was some worry about how so many funds would get onboarded in a short period. But we did not see any issues. We have not heard of any major concern from our clients,” Bagree said.

Yields Restrained
The strong foreign flows over the past few months have brought down government bond yields, and in turn borrowing costs for corporates looking to raise funds through debt. So far in 2024, yield on the 10-year benchmark government bond has fallen 22 basis points to 6.96%, LSEG data showed. So far in the current fiscal year, yield on the bond has eased 9 basis points, the data showed.

Government bond yields are the benchmarks used for pricing corporate debt.

“After November, the FPI flows into debt have been around $1.5 billion a month, which is quite sharp. It was just around $320 million on an average basis for the preceding 8 months.

This has provided a boost to the market and also kept yields stable in the lower quadrant,” wrote Madan Sabnavis, chief economist, Bank of Baroda.

“With the weight in the index going to increase by 1% every month, it does appear that the tempo will be maintained, albeit at a lower level,” he said.

India is expected to reach a maximum weight of 10% in the GBI-EM Global Diversified Index over a 10-month period. JP Morgan’s analysts wrote last month that they expect foreign investment worth $20-25 billion to flow to the local bond market.

A Billion Dollars
This has provided a boost to the market and also kept yields stable in the lower quadrant,” wrote Madan Sabnavis, chief economist, Bank of Baroda.

“With the weight in the index going to increase by 1% every month, it does appear that the tempo will be maintained, albeit at a lower level,” he said.

India is expected to reach a maximum weight of 10% in the GBI-EM Global Diversified Index over a 10-month period. JP Morgan’s analysts wrote last month that they expect foreign investment worth $20-25 billion to flow to the local bond market.