FPI holdings in FAR securities have increased by 35% after JPMorgan said that Indian bonds will now be included in its index

 FPI holdings in FAR securities have increased by 35% after JPMorgan said that Indian bonds will now be included in its index

FPI holdings in FAR securities have increased by 35% after JPMorgan said that Indian bonds will now be included in its index

According to experts, the assumption that Bloomberg would include Indian government securities in its bond index is another reason for the rise in FAR holdings of FPIs.

According to statistics from Clearing Corporation of India, since JPMorgan announced that Indian bonds would be included in the JPMorgan Emerging Markets Bond Index, foreign portfolio investors (FPIs) have been permitted to participate in Indian government securities via the Fully Accessible Route (FAR). There has been a 35% rise in investment. (CCI).

Non-residents may invest limitlessly in Government of India assets with certain dates thanks to the Foreign Account Tax Regulation (FAR).

The data shows that FPI investments in FAR securities grew by 35% on September 22 and by 65% on April 3 as of December 20.

"We saw a sharp jump in how much was allocated of these securities since all of the FAR securities are acceptable for inclusion in the index," said Mataprasad Pandey, vice-president of the Mumbai-based investment advice business Arete Capital Services.

Experts in the money market said that anticipations of higher inflows after the addition of securities to the index also contributed to the increase.

JPMorgan said on September 22 that as on June 28, 2024, Indian government bonds will be a part of its frequently monitored emerging markets index.

The incorporation of India's sovereign bonds has the potential to attract $30 billion in international investments into the nation.

With the value of qualified government bonds reaching $330 billion and India's weight in the index raised to a maximum of 10%, analysts said the decision has substantial ramifications for investors in the country's debt market.

Experts predict that the bond index will contain the majority of FAR securities. According to Pandey, there would be a greater demand for 5-year and 7-year securities since overseas investors like them.

Domestic investors may purchase FAR securities in addition to overseas investors. The RBI has added sovereign green bonds to the list of FAR securities earlier this year.

Quantity

In absolute terms, FPIs' FIR holdings were Rs 1.28 lakh crore as of December 20, 2023, Rs 94,709.302 crore much of September 22, 2023, and Rs 77,441.358 crore as of April 3, according to CCIL statistics.

FPIs own 18.38% of the 7.37 percent bonds issued in 2028, 9.88 percent of the 7.32 percent bonds issued in 2030, and 8.55% of the 7.06 percent bonds issued in 2028.

FPIs own around 5.78 percent of the 10-year 7.18 percent benchmark bond, which is due in 2023, via the FAR route. This comes to a total of Rs 7,917.309 crore.

An additional index entry?

According to currency market specialists, foreign players are also boosting their stakes since they anticipate the inclusion of another index.

According to a fund manager at a mid-sized fund house, "the increase in FAR holdings of FPIs can also be related to expectations that Google will add Indian government securities to its bond index."

The local market was optimistic that Bloomberg will soon add Indian government securities to its bond index, according to a Moneycontrol article dated October 31, 2023. This confidence stemmed from news of the assets' "potential eligibility" for inclusion.

According to sources, the confidence stems from the fact that JPMorgan's advisory council and the Bloomberg Fixed Income Index advisory council have the same members.

One participant said, "FAR securities are likely to be included as there are no restrictions for FPIs."

According to experts, the weighting of Indian government bonds in the Bloomberg index may be between 0.7 and 0.8 percent.

effect on the yields on bonds?

Market experts predict that once bond inflows and outflows start, yields on Indian government securities would decrease.

He did, however, add that the yield would not be much reduced when taking into account domestic considerations.

"It seems that yields did not significantly decrease after inclusion in the index. According to Pandey, the main factors influencing yields in India will be supply and demand, inflation, interest rates, and other macro factors.