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Foreigners flock to Indian bonds and create a sensation in the market

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Money has been flowing into India since its decisive integration into major global markets. bind Stock indexes are already reshaping markets in a country long eager to protect itself from speculative capital flows.

Foreign investors have pumped about 780 billion rupees ($9.4 billion) into eligible sovereign bonds since JPMorgan Chase & Co.’s historic announcement in September and are starting to climb the shareholder list. Capital flows are leaving their mark on a variety of assets, with corporate bonds outperforming their peers and foreign exchange reserves reaching a record high. The rupee shrugged off the impact of a broad-based strengthening of the dollar.

“This is an important event. The long-awaited inclusion of India in the index is expected to open the door for increased participation by foreign investors,” said Chidu Narayanan, head of Asia-Pacific macro strategy at Wells Fargo & Co. Inflows of around $25 billion for Indian bonds by the middle of next year should support the rupee, he said.

Big influx

The influx of money has helped India’s Fully Accessible Road bonds, known as FARs for short and which are about to join the gauges, yield 2.76% this year in dollar terms, according to data compiled by Bloomberg. They outperformed a global index of emerging sovereign debt as well as an indicator of corporate and sovereign bonds in emerging Asia.

These capital inflows have helped make it one of the best performing countries in emerging market public debt in local currency in 2024.

Monetary effect

“We are seeing a bit of head start,” ahead of the June deadline, said Radhika Rao, senior economist at DBS Group Holdings Ltd. “The bulk of the flows are still to come, and we expect this to happen as inclusion begins.” and when the JPMorgan index reflects the full 10% weighting for India towards the end of the year.

One of the consequences of these large inflows was the accelerated intervention of the Reserve Bank of India, which purchased the incoming dollar flows, allowing its foreign exchange reserves to reach a record amount of 642.5 billions of dollars. The intervention is largely aimed at protecting the rupee from volatile movements.

Record reserves

The Reserve Bank of India has stepped up its purchases in recent weeks, buying a total of $20 billion since early February, according to Bloomberg Economics.

Corporate bonds

Corporate bonds also benefited from flows into public debt, with the former being highly valued relative to sovereign bonds. The yield on top-rated 10-year bonds has fallen about 30 basis points since the index was announced.

Bloomberg Index Services Ltd. will also include some Indian bonds in its emerging markets local currency index starting next year. Bloomberg LP is the parent company of Bloomberg Index Services Ltd., which administers indexes that compete with those of other service providers.

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