Foreign banks have purchased more than US$ 16 billion worth of Indian bonds in the first 7 months of this year, surpassing the record purchases for the entire previous year, according to official data. The surge in activity coincided with India’s inclusion in the JPMorgan Emerging Market index last month, and there are expectations of better returns as interest rates are anticipated to decline, according to several traders. Additionally, the country’s banking system liquidity surplus reached a near one-year high this month, further boosting demand, which traders expect to remain strong.
The continued purchases by foreign participants will alleviate the pressure on local banks to absorb the bond supply. Foreign banks and foreign portfolio investors are particularly likely to target short-term bonds, lowering yields and steepening the yield curve. Foreign banks have bought bonds worth US$ 16.38 billion (Rs. 1.37 trillion) on a net basis in 2024, nearly 20% of the year’s gross supply, according to CCIL data. These purchases were a record US$ 14.58 billion (Rs. 1.22 trillion) over 2023. The 10-year bond yield fell by 9 basis points (bps) in July, while the 5-year yield declined by 16 bps. Mr. Siddharth Bachhawat, Barclays’ head of markets, said, “We retain our long-duration view. A strong macro backdrop, favourable demand-supply dynamics, growing foreign interest, and discretionary interest – all augur well.” Mr. Akshay Kumar, head of global markets, India, at BNP Paribas, noted, “I think foreign bank buying has been more concentrated in the shorter end of the curve, which is why that segment has rallied more.”
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.