Global Funds Offload Indian Bonds After A Year Even As Index Inclusion Looms
The pace of inflows has fallen this year, but the uptrend still remains intact with year-to-date inflows at Rs 45,572 crore.
Foreign inflows in India's debt market have turned negative in April for the first time in over a year, even as it awaits its global inclusions in the months to come. The net outflow for the month comes amid the domestic stock markets scaling new highs on positive macroeconomic factors.
So far this month, foreign portfolio investors have turned net sellers by offloading Rs 411 crore of government securities, according to data from the National Securities Depository Ltd., updated till the previous trading day. The previous monthly outflows were recorded during March 2023.
The total aggregate holding of foreign investors in fully-accessible-route holdings saw a decline of Rs 3,808 crore to Rs 1.7 lakh crore during this month. Meanwhile, the rupee-denominated bonds saw the biggest selloff of $425.3 million on March 23.
The outflows could be attributed to profit booking as the FPIs have frontloaded their purchases into FAR securities, according to Mataprasad Pandey, vice president at Arete Capital Service Pvt. "I would attribute the reason as profit booking into the securities with higher concentration — 7.37 GS 2028 — and the rupee depreciation, which touched the record low in the month of March."
The inclusion of the gilts in JPMorgan's Government Bond Index-Emerging Markets is set to come live this June. This, along with the inclusion of Bloomberg's Emerging Market Local Currency Indices, is expected to pump in $40–50 billion inflows.
While the pace of inflows has fallen this year, the uptrend still remains intact with year-to-date inflows at Rs 45,572 crore. Inflows in January stood at Rs 19,837 crore, while February saw the highest monthly inflow in over seven years at Rs 22,419 crore.
Since the announcement of Indian government bonds in the JPMorgan Emerging-Market Index in September last year, the debt market has seen an inflow of Rs 95,929 crore. With the strengthening of the domestic currency, foreign investment will stabilise in the coming days, Pandey said.
The pause also comes amid the cautious stance taken by the global funds amid the Lok Sabha election.
Meanwhile, the yield in the 10-year benchmark opened 2-basis-point lower at 7.13% on Wednesday.
