The Indian debt market in January saw its biggest monthly foreign inflows in over six years, fuelled by the inclusion of government bonds in the JPMorgan Index.
Foreign portfolio investors infused Rs 19,837 crore in January, according to data from the National Securities Depository Ltd. The previous highest monthly inflow by FPIs was recorded in June 2017, with an inflow of Rs 25,685 crore.
The inclusion of government bonds in the JPMorgan Emerging Market Bond Index and reducing inflation across the globe is giving foreign institutional investors the opportunity to frontload their investment into Indian sovereign bonds, according to Mataprasad Pandey, vice president at Arete Capital Services Pvt.
The inflows in the debt market will continue going forward, he said. "Interestingly, these inflows are coming when we are done with almost all the rate hikes, so with a limited chance of hardening yields and higher chances of capital appreciation on account of rate cuts."
In 2023, the debt market also witnessed the highest yearly foreign inflows in six years.
Bloomberg Index Services also proposed to include Indian bonds in its emerging market local currency indices starting in September 2024.
The yield on the benchmark 10-year bond fell by three basis points to 7.14% in January, mainly due to these foreign inflows. This will be the best start to January in five years.
Government bond yields currently have been range-bound, but Arete Capital's Pandey expects the yield to remain mainly below 7.20% as macroeconomic conditions are in favour of a rate cut soon, probably before the end of Q2 FY25, he said.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
