Foreign investment in Indian government securities surpasses $9B in 2024
Foreign investment in Indian government securities (G-secs) via the fully accessible route (FAR), has exceeded $9 billion within the first seven months of this year. This sum significantly outpaces the total investment for all of 2023, which saw an inflow of $8.21 billion into these securities. The figure was revealed through an analysis of Clearing Corporation of India Ltd (CCIL) data.
Inclusion in 'JP Morgan' index boosts investment
The surge in investment was triggered by the inclusion of domestic sovereign debt in the JP Morgan index in September 2023. This move led to a $13.26 billion influx into government securities via FAR. The global sentiment this year, with an anticipated US rate cut cycle starting next month and US 10-year bond yields falling below 4%, has made emerging market debts more attractive to foreign investors.
RBI's new policy on government securities
The Reserve Bank of India (RBI) recently announced a policy change, stating that it will exclude all new government securities of 14-year and 30-year tenors from the FAR suite of bonds, which does not impose any restrictions on foreign investment. This decision is expected to lower the average maturity of local bonds in the index. Currently, Indian bonds in the JP Morgan index have an average maturity of 10.4 years, marking it as the highest among emerging markets.
Market optimism remains high
Despite the RBI's policy change, optimism remains high within the money market regarding India. "The markets are very promising right now with a Fed rate cut expected next month. In a scenario where the market is not as bullish, there can be sell-offs in bonds and selling bonds with longer tenures becomes a challenge for FPIs," said Vikas Jain, Head of Fixed Income - India at Bank of America.
