By Latest News
Government bond yields ended flat on Friday – on a day when India’s official inclusion in JP Morgan’s Government Bond Index-Emerging Markets (GBI-EM) kicked in – as foreign inflows underwhelmed investors.
The yield on the benchmark bond settled flat at 7 per cent on Friday.
“Maybe people have bought something before the event. There are other derivative routes that some of the funds would have taken through,” said Naveen Singh, vice-president of ICICI Securities’ primary dealership. “So there is no immediate need to buy. They always have the option to buy in a staggered manner over a period of time,” he added.
The 10-year benchmark bond yield inched up to 7.02 per cent during the day as traders sold their securities at a profit.
“Those who had the positions have been selling for the past few days because the inflows that were expected did not materialise,” said a dealer at a large state-owned bank. “There was also some quarter-end profit booking,” he added.
According to data from the Clearing Corporation of India, foreign banks have net purchased Rs 46,954 crore worth of government bonds in the secondary market in June. On the other hand, foreign portfolio investors have bought Rs 15,616 crore worth of government bonds under the fully accessible route in June. On Thursday, foreign inflows in the government bonds were Rs 946 crore.
In September 2023, JP Morgan had announced that it will include government papers, issued by the Reserve Bank of India (RBI) under the Fully Accessible Route (FAR), in its widely tracked GBI-EM. The inclusion process will be phased over a 10-month period, with 1 per cent weight included each month until March 31, 2025. Indian bonds will have a 10 per cent weight, similar to China.
India government securities have seen inflows of $10.4 billion since the index inclusion announcement in September 2023. Out of 38 bonds under the fully accessible route, only 29 meet the eligibility criteria for the JP Morgan bond index, which requires a face value of over $1 billion and a remaining maturity of more than 2.5 years.
Standard Chartered has projected at least $2 billion-$3 billion inflows every month as India’s index weighting increases to 10 per cent.
“India is a strong diversification option, with good macros and a stable currency. We could see foreign inflows of $2 billion-$3 billion per month, with the pace likely to accelerate once the US starts cutting rates,” said Parul Mittal Sinha, head of financial markets for India and co-head of macro trading for ASA at Standard Chartered.
“Since October 2023, non-residents have poured almost $10 billion into Indian government bonds, and an additional $5 billion through USD-settled, INR-denominated supranational bonds. With $2.3 billion inflow in June alone, there’s strong confidence that by the end of March 2025, index trackers will have a 10 per cent weight allocated to India,” Sinha added.
First Published: Jun 28 2024 | 7:52 PM IST