Foreigners grab $2 billion of India’s index-eligible debt

Foreign investors have bought 17,250 crore ($2.1 billion) so-called Fully Accessible Route (FAR) bonds, they have been net buyers in every month so far this year. shopping eclipsed shopping throughout 2022 which was 15,900 crores.

The heightened risk appetite by foreigners comes as India’s central bank unexpectedly halted its tightening cycle this month, with bond investors betting that interest rates in Asia’s third-largest economy may have peaked.

That positive sentiment is likely to get a boost from the JPMorgan survey. Support for adding Indian government bonds designated under FARs rose to 60% in JP Morgan’s most widely tracked gauge for emerging market government debt in a survey conducted in March. That was up 50% from the previous year, analysts including Gloria Kim, managing director and global head for index research at the firm, wrote in a note last week.

“Survey respondents expressed a preference for the first half of 2024 at the earliest for index inclusion with a phase-in period of ten months,” the analysts wrote. The survey does not make any immediate changes to India’s position and the country continues to be monitored for index inclusion. The outcome of the consultation for possible inclusion is due in the third quarter of 2023.

The JP Morgan survey follows FTSE Russell’s decision in March to ask India to track its emerging market government bond index.

India’s bond market is the largest in the emerging world that is not already included in global indices and New Delhi has shown reluctance to make tax changes that would help settle securities on global platforms such as Euroclear. Local authorities are wary about hot money flowing into government securities, especially high public debt and a currency that is only partially convertible.

“The process of incorporation is ongoing, but it will take longer than this year,” said Rajeev De Mello, global macro portfolio manager at Gamma Asset Management SA. ) but others need time to go through various administrative hoops.”

obstacles

The survey showed that investors who opposed India’s inclusion cited margin requirements for trading, barriers to free funds moving out of the country from the sale of bonds, and the long period required to register an onshore account. Cited constraints like 42% of investors also cited taxes as a significant barrier, which was lower than other barriers.

Naveen Singh, head of trading at ICICI Securities Primary Dealership Ltd in Mumbai, said, “Investor reaction is definitely positive as India is one of the high-yielding economies with a stable currency.” Structural issues are not getting resolved any time soon. Ease of trading in other geographies would thus deprive the markets of any near-term gains.”

The survey revealed that 25% of the respondents would support India’s inclusion from January 2024, while 20% were in favor of it from June 2024. Only 15% said they needed a minimum amount of time. Investors also said that the phased rebalancing would help in removing the remaining investment bottlenecks.

Bloomberg LP is the parent company of Bloomberg Index Services Ltd., which manages competing indexes with other service providers.