FPIs’ G-Sec purchases cross $10-billion mark

As of June 18, the indicative value of aggregate FPI holdings in Fully Accessible Route (FAR) government bonds was at ₹1.79 lakh crore, having registered an increase of ₹84,105.70 crore (around $10.01 billion) from September 22, 2023 – the day JP Morgan announced India’s index inclusion, Clearing Corporation of India (CCIL) data showed.

The heavy flow of foreign funds has come before the June 28 date when the actual process of index inclusion will start, with JP Morgan’s head of index research saying on Wednesday that foreign flows following the inclusion could be around $20-25 billion over the next ten months.

“India’s index inclusion clearly brings forward the need to rebalance the global portfolio, which is underway and will continue as the index weightage grows through the year,” said Ashhish Vaidya, head of treasury and markets at DBS Bank.

The numbers were even higher by the end of trading on Wednesday, with FPI investment in the FAR securities at ₹1.8 lakh crore. The FAR securities – which have no restrictions on overseas investment – are those that are eligible for inclusion in the JP Morgan index.From May 31 to June 19, FPI investment in the FAR securities has risen by ₹10,661 crore, with the gush of flows pushing down the yield on the 10-year benchmark government bond 26 basis points over the past two months. The 10-year bond yield closed at 6.97% on Wednesday. Bond prices and yields move inversely.10% Final WeightingAfter being included in JP Morgan’s GBI-EM Global index suite, Indian bonds are expected to reach a weight of 10% over a 10-month period. With barely 10 days left for inclusion to start, foreign investors – even those without registrations – have found ways to pour funds into much-sought-after Indian bonds.

“In this backdrop, we have seen an increase in FPI inflows into Indian government bonds, where the end investor may have invested in direct or total return swap (TRS) format,” said Parul Mittal Sinha, head-financial markets, India at Standard Chartered Bank.