(Bloomberg) -- Foreign investors are tiptoeing back into Indian sovereign bonds, but they continue to sell the nation's corporate debt as the coronavirus spread hurts earnings.
There was 55.9 billion rupees ($751 million) of outflow from credit in October, a ninth month of net declines, according to data from National Securities Depository Ltd. However, their sovereign bond holdings rose at the quickest pace this year led by purchases of notes that allow for full foreign ownership, known as the FAR route, according to a Barclays Plc. report.
“The unabated spread of Covid-19 has been dampening the outlook for the overall economy, the currency as well as corporate earnings,” said Prakash Sakpal, an economist at ING Groep NV in Singapore. “Adding to this is policy uncertainty and deteriorating external credit standing, especially the continued overhang of rating downgrades. All this demand an increased risk premium.”
India's benchmark 10-year bond yield fell 13 basis points in October to post its best monthly gain since May after the Reserve Bank of India introduced measures including doubling the size of its open market debt purchases. That's mitigated concerns over heavy debt supply even as the government lifted its issuance plan to 13.1 trillion rupees for the fiscal year. The yield rose two basis points to 5.91% on Tuesday.
The government's move to raise borrowings in shorter bonds, primarily the tenors for corporate fund raising, have left companies increasingly at the mercy of the central bank to ensure adequate liquidity.
Overall, offshore investors make up about 3% of India's bond market versus 26% in Indonesia. India's biggest move yet in opening its debt market came in March when it allowed offshore buyers to purchase a swath of its sovereign paper.
Here's a snapshot of foreign ownership of Indian bonds as per data from the Clearing Corp. of India and NSDL:
| Foreign Institutional Investor holdings (in billion rupees) | End-Oct | End-Sept | Change |
|---|---|---|---|
| Govt. Bonds (General Category) | 973.2 | 953.6 | 19.6 |
| Govt. Bonds (Long Term) | 251 | 254.8 | -3.8 |
| Govt. Bonds (FAR Route) | 342.4 | 265.7 | 76.7 |
| State Bonds (General) | 8.9 | 7 | 1.9 |
| State Bonds (Long Term) | -- | -- | -- |
| Corporate Bonds | 1,395.6 | 1,451.5 | -55.9 |
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