Foreign portfolio investment in Indian government securities designated under the Fully Accessible Route (FAR) are nearing Rs 2 trillion, almost doubling in the last nine months following JP Morgan’s inclusion of Indian debt in its index, Clearing Corporation of India (CCIL) data showed.
As of July 16, total investment in FAR securities stood at Rs 1.93 trillion, against Rs 94,709 crore as on September 22, 2023. FPI investment in FAR securities had crossed the Rs 1 trillion mark on October 16, 2023.
Only Indian government bonds issued by the Reserve Bank of India under the Fully Accessible Route (FAR) are included in the index. All FAR-designated Indian government bonds maturing after December 31, 2026 are eligible.
Market participants said that the inflows are expected to continue and might touch Rs 2.5 trillion in the next 5 to 6 months.
“The investments have doubled because of JP Morgan bond index inclusion. Not only the actual flows that have happened after the inclusion, but also when the announcement happened that India will be included, the flows had already started coming in,” said Vijay Sharma, senior executive vice-president at PNB Gilts. “The rate at which the money is coming will continue, and in another 5-6 months we can touch Rs 2.5 trillion,” he added.
In September 2023, JP Morgan had announced that it will include government papers, issued by the Reserve Bank of India (RBI) under the Fully Accessible Route (FAR), in its widely tracked GBI-EM starting June 28 of the current year.
The inclusion process will be phased over a 10-month period, with 1 per cent weight included each month until March 31, 2025. Indian bonds will have 10 per cent weight, similar to China.
Out of 38 bonds under the fully accessible route, only 29 meet the eligibility criteria for the JP Morgan bond index, which requires a face value of over $1 billion and a remaining maturity of more than 2.5 years.
After the official inclusion, FPIs have infused Rs 9,364 crore in the Indian debt market, according to the latest data by the National Securities Depository Limited (NSDL).
“It will be interesting to see if this momentum is maintained in the coming months too as the build-up to June 2024 was quite swift. With the weight in the index going to increase by 1 per cent every month, it does appear that the tempo will be maintained, albeit at a lower level,” said Madan Sabnavis, chief economist at Bank of Baroda.
In the first ten trading days following inclusion in the JPM index, FPI into debt reached $1.02 billion. This was preceded by higher inflows of $1.22 billion between June 13 and June 27. From May 30 to June 12, the inflows were $739 million. Post-November, FPI flows into debt have sharply increased to around $1.5 billion per month, compared to an average of just $320 million over the preceding eight months.
First Published: Jul 16 2024 | 6:36 PM IS