Citi Remains Bullish On India Bonds As JPMorgan Index Weight Continues To Rise

Citi Research continues to bet on India's bonds as the local gilt's weightage in JPMorgan's benchmark emerging-market index keeps rising amid a recent weakness in foreign buying.

Global funds' buying of Indian bonds via Fully Accessible Route have stalled this month, likely due to fears of weakness in Rupee, analysts at Citi said in a note. "We expect foreigners to resume buying as India’s weight in the JPM index will continue to increase and offshore can’t afford to be very underweight a high yielder."

The bonds were added to JPMorgan Chase & Co.'s benchmark emerging-market index in June last year. Post the inclusion, the domestic gilts have seen record inflows, bringing in liquidity and helping the currency remain firm. The inflows, following the inclusion, helped the domestic gilts attract Rs 1.10 lakh crore in 2024, the highest since 2017.

However, the appetite for domestic debt lost steam after Donald Trump’s election win upped speculation of higher US inflation and pushed up the dollar. Global funds withdrew Rs 4,287 crore under FAR in November last year.

In 2025, so far, FIIs sold Rs 3,599 crore in the general limit, while the FAR still saw an inflow of Rs 14,575 crore. The inclusion of the government bonds in the Bloomberg Emerging Markets Local Currency Government indices also took effect from Jan. 31.

Meanwhile, Citi remained concerned about the rupee and was underweight on the currency in their model portfolio. Negative FDI inflows, outflows in equities and heightened risk around reciprocal tariffs could be the key triggers for the cautious stance, Citi said. The hurdle for the rupee to outperform remains high even if the dollar were to weaken, it said.

Two big themes in India fixed income markets have been the terminal rate cuts and the Reserve Bank of India's efforts to improve the rupee liquidity against the backdrop of aggressive forex intervention, Citi said.