Foreign investors eye long-term Indian bonds as JPMorgan inclusion nears – Business Standard

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Foreign investors eye long-term Indian bonds as JPMorgan inclusion nears – Business Standard

Along with direct purchases, foreign investors have relied on derivatives to gain exposure to Indian bonds.

Photo: Shutterstock

Reuters

Foreign investors are buying longer-duration Indian government bonds ahead of their inclusion in JPMorgan’s emerging market debt index as they expect these securities to attract a large portion of passive flows.

Foreign investors sold a net 117 billion rupees ($1.41 billion) of government bonds over the past ten weeks, but bonds with maturities of 10 years and above recorded losses. capital inflows, according to clearinghouse data.

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India’s old benchmark 7.18 per cent bond due 2033 led the flows, followed by the 7.30 per cent bond due 2053.

“Bonds of 9 years and above represent 50 per cent of India’s future weighting in the index and will therefore receive particular attention from investors,” said Clément Niel, portfolio manager for local emerging markets debt at BNP Paribas Asset Management.

“We expect more flows here as investors increase their passive exposure to India,” Niel added.

At 12 percent, the 2033 bond has the largest foreign participation among bonds falling under the so-called fully accessible route, which allows unhindered purchases abroad.

The 2053 bond is 3.6 percent foreign-owned.

Along with direct purchases, foreign investors have relied on derivatives to gain exposure to Indian bonds.

Inclusion in the JPMorgan Emerging Markets Debt Index from June 28 could generate around $25 billion in passive inflows, according to market estimates, while active fund managers have already started buying.

Until March, most foreign purchases were of shorter-duration bonds, but fund managers are now changing strategy.

The inclusion of indices and slowing inflation globally will help push long-term rates lower in the future, said Niel of BNP Paribas Asset Management.

Allianz Global Investors, which is strengthening its exposure to India, is targeting bonds, notably the 30-year title which will be included in the JPMorgan index.

“The long end of the bond curve is usually mainly affected by the fiscal situation,” said Giulia Pellegrini, senior portfolio manager for emerging market fixed income at AllianzGI.

“And in India, the fiscal situation is positive. So we don’t mind at all having long-term exposure as well.” The Indian government is seeking to reduce its budget deficit to 4.5% by March 2026, with a recent large central bank dividend reducing risks to public finances.

At the same time, rising US yields and the fall in the Indian rupee at the start of the year led to capital outflows into short-term bonds.

“A significant portion of capital outflows occurred due to unwinding of positions facilitated by total return swaps (TRS),” said Manish Bhargava, fund manager at Straits Investment Management.

(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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