Foreign investors pour $538 mn into Indian bonds in Sept, turn net buyers

 

The inflows in September "could be a sign of foreign capital returning" to India, said Duncan Tan, a strategist at DBS Bank.

Foreign investors poured $538 million into Indian bonds in September, the first inflow in seven months, following the trend in other Asian debt markets.

In September, foreign investors poured over $1 billion into Asian government and corporate bonds, more than doubling their investment in local currency debt from the previous month, attracted by higher yields and some signs of economic recovery. The inflows in September “could be a sign of foreign capital returning” to India, said Duncan Tan, a strategist at DBS Bank. He said India’s relatively high-yielding government debt had become attractive for foreigners with the Reserve Bank of India (RBI) reluctant to ease monetary policy further to avoid fuelling inflation.

But Jitendra Gohil, head of India equity research, Credit Suisse Wealth Management, argued that despite rising inflation, Indian bond yields cooled off after the RBI announced a series of unconventional measures to ease the financing conditions further. The Indian 10-year government bond yield fell 13 basis points to 5.90 per cent, while the 10-year AAA corporate bond yield declined 13 basis points to 6.75 per cent.

"In our base case, we continue to see space for an additional 50 basis point rate reduction in the upcoming (Monetary Policy Committee) meetings. We expect yields to continue to drift lower in the near term, supported by continued OMO (open market operation) announcements and other unconventional policy measures by the RBI. While the fiscal and supply risks have not completely faded, these will likely only surface later in the year. Globally, too, the interest rates are expected to remain lower for longer. The yield curve in India is steep, which is attractive. Hence, we now prefer medium- to long-duration bonds. Within the corporate bond market, we continue to recommend AA-rated or higher-grade bonds," Gohil said.

The data from regional central banks and bond market associations in Indonesia, Malaysia, Thailand, South Korea and India showed that Asian local currency bonds received inflows of $1.26 billion last month.