Foreign banks have emerged as the largest investors, with their investments exceeding the value of net inflows into index-eligible bonds, according to the RBI Bulletin. “Some of the world’s largest sovereign wealth funds have significantly increased their investments in India. Post inclusion, flows have been muted and yields have remained almost flat, indicative of steady flows in the months ahead rather than volatile surges,” it said.
Ahead of the inclusion of Indian sovereign bonds in the JP Morgan index, foreign portfolio investors have increased their ownership of these bonds by over $ 10 billion.
India’s inclusion in the JP Morgan’s Government Bond IndexEmerging Markets (GBI-EM) has begun on June 28, 2024. Over a 10-month period, the weight of Indian bonds would increase by 1 per cent every month, eventually reaching 10 per cent by March 2025.
The debt segment continues to draw FPI inflows and is estimated to attract around $20 billion to $40 billion within 18-21 months since the announcement of inclusion of Indian Government Bonds in the JP Morgan’s GBIEM. The prospects for FPI debt inflows appear optimistic as India is going to be included in other global indices. Net FPI inflows in July 2024 (up to July 15) were to the tune of $3 billion.
Debt binge
Since June 1, FPIs have significantly increased their investments in India’s debt segment, infusing Rs 26,251 crore. Foreign banks have been substantial contributors, purchasing more than $6 billion worth of debt in this period.
Indian government securities under the fully accessible route (FAR) have seen particularly strong inflows, with Rs 23,351 crore invested. Out of 38 bonds under FAR, 29 meet the eligibility criteria for the JP Morgan bond index, which requires bonds to have a face value of over $1 billion and a remaining maturity of more than 2.5 years.
In anticipation of Indian sovereign bonds being included in the JP Morgan bond index, FPIs have increased their holdings of these bonds by over $10 billion.
