The debt market saw a reversal of fortunes in April after a year of consistent, robust monthly inflows from foreign portfolio investors (FPIs). Market participants anticipate that the selling pressure will persist, with the expectation that the bond market will regain its stability following the JP Morgan bond index inclusion in June.
“There might be selling for some time by the active investors who had come in,” said Vikas Goel, managing director and chief executive officer, PNB Gilts.
“It is temporary… there will be some outflow but it will be marginal. There is no trigger now to be buying and that is why I think there is some amount of selling,” he added.
FPI investment in government bonds fell by around 5.5 per cent in the last month. They sold Rs 6,530 crore worth of 5-year bonds, which is the most liquid bond among Fully Accessible Route (FAR) securities.
“I think in the months of April and May foreign inflow will be subdued,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP. “But, they might come back stronger post-election,” he added.
In September 2023, JP Morgan included India in its flagship index GBI-EM Global Diversified index. India will join the index with 1 per cent in June. The weight will increase by 1 per cent each month until 10 per cent in April 2025. Subsequently, on March 5 of the current year, Bloomberg Index Services revealed that Indian government bonds would be added to its Emerging Market Local Currency Government Index starting January 31, 2025.
During the financial year 2024, domestic markets witnessed foreign inflows of Rs 3.23 trillion, a notable turnaround from the Rs 45,365 crore worth of outflow recorded in 2023. Of the total inflows, foreign investors injected Rs 1.2 trillion into the debt segment, marking the highest influx since the financial year 2014-2015, according to data on the National Securities Depository Limited.
During the last quarter of 2024, foreign investors infused Rs 54,492 crore into the debt market, which led to a fall in the yield on the benchmark bond by 14 basis points during the period. The yields also slumped because the US Federal Reserve Committee hinted towards three rate cuts in 2024.
First Published: Apr 18 2024 | 6:58 PM IST
