Indian Bonds Ripe For Rally On Foreign Inflows, BlackRock Says

Indian bonds present an attractive opportunity for foreign investors after a bruising selloff, according to a BlackRock Inc. product strategist.

The spread between 10-year debt of India versus the US is near its widest level year-to-date and there’s potential for a reversal, Koay Hui Sien, BlackRock’s head of iShares fixed-income product strategy for APAC ex-Japan, said in an email interview. A rare sovereign rating upgrade last month helps make Indian bonds appealing, she added.

“The setup favors renewed foreign inflows,” Koay said, particularly with the Federal Reserve’s interest-rate-cut path into year-end. The Fed reduced rates on Wednesday and signaled more might come this year, which makes debt of other countries more attractive by comparison.

Global funds are starting to return after months of subdued international appetite amid tariff-related worries. Foreign purchases of index-eligible Indian bonds hit 104 billion rupees ($1.2 billion) in August, the highest since March — even as yields on India’s 10-year notes rose 19 basis points, the sharpest monthly advance in three years. 

India’s domestic-driven growth and low dependence on US exports boost its appeal in such an environment, according to Koay. 

Indian bonds also offer good potential for roll-down return — price gains made as they approach maturity — and that the currently low levels of foreign ownership leave plenty of room for a catch-up trade, Koay said.

However, there are still concerns, including the rally in yields last month. On a hedged basis, Indian bonds are underperforming global peers with a 3% gain this year. And worries over heavy supply of longer-duration bonds linger.

But that also means “a clear pickup over Asian peers” and with lower volatility, Koay said. Indian 10-year government bonds yield around 6.5%, compared with about 6.2% in Indonesia and 5.9% in Thailand.

BlackRock launched its India government bond exchange traded fund in February 2024, four months before the country’s debt was included in JPMorgan Chase & Co.’s flagship emerging market index. Foreign holdings of index-eligible notes have risen by more than a trillion rupees since then.