FPIs' investments in govt bonds more than doubled this year
Foreign funds have poured money into government bonds at a tearing pace over the past few months, with their investments in the fully accessible category more than doubling in a year to ₹1.28 lakh crore by December as global index inclusion and a softer tone from the US Fed burnish the appeal of Indian debt.
The influx of foreign money after a three-year hiatus has kept local sovereign bond yields — and therefore corporate borrowing costs — anchored amid a volatile inflation environment and a tight liquidity stance by the Reserve Bank of India (RBI).
The indicative value of aggregate holdings of foreign portfolio investors (FPIs) in government bonds under the 'fully accessible route' (FAR) was at ₹1.28 lakh crore as on December 26, versus ₹61,260 crore as on December 30, 2022, latest data released by the Clearing Corporation of India (CCIL) showed. The FAR category was introduced by the RBI in 2020.
«As we've seen in other jurisdictions also, a lot of money actually comes in before the index weighting starts to take effect.
The second factor would be that global markets are now taking a view that the Fed is going to ease policy. To that extent, emerging markets have received renewed capital flows,» said Rajeev Radhakrishnan, chief investment officer, fixed income at SBI Mutual Fund.
From September 22 to December 26, the increase in FPI holdings of sovereign debt under the FAR category was at ₹33,243.07 crore, a rise which outstrips sales of government bonds worth ₹29,778 crore by overseas investors in the general category of Indian bonds from 2020 to now.
