FII flows into debt may lead to a balance of payments surplus of over $50 billion due to JP Morgan Bond index inclusion

economictimes.indiatimes.com:

balance of payments could record a surplus of around $52 billion, or about ₹4.3 lakh crore, in the current fiscal, with foreign institutional investor inflows likely to clock $25 billion, largely due to the inclusion of local debt in a JP Morgan index, State Bank of India has said.

«FII inflows, which are $3.5 billion so far this fiscal, are expected to be around $25 billion, getting support through debt inflows on account of bond inclusion ($2.3 billion so far plus another $18 billion expected),» a report by SBI's economic research department said.

The bank expects India's current account deficit at $36 billion, or 0.9% of GDP in FY25, with exports of goods at around $455 billion and imports at $708 billion.

In FY24, India's current account deficit shrunk to 0.7% of GDP from 2% of GDP a year earlier. A combination of factors, including the government's commitment to fiscal consolidation, easing inflation and debt inflows from the JP Morgan index inclusion, are likely to push down government bond yields, SBI's economists said.

Bank sees room for 10-year bond yields to fall to a lower bound of 6.80%. The 10-year bond yield was last at 6.97%. «The substantial foreign investment will enhance the bond market depth and support system liquidity further,» SBI economists said. «Liquidity situation, which has been affected due to the adoption of JIT (just in time) mechanism via its impact on government surplus cash balances, might get some respite.»