Indian bonds back in action with inclusion in JP Morgan index

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₹84,093 crore, show data from the National Securities Deopistory Ltd. Foreign bond investors locked in yields anticipating that the Reserve Bank of India would maintain its high-interest-rate stance leading up to the inclusion of Indian bonds in the JPMorgan index. Also read | Look who scooped up Indian bonds since the JP Morgan move “Foreign investors are shifting towards longer-dated Indian bonds," said Kunal Sodhani, vice president at Shinhan Bank.

“Yields have dipped since the inclusion announcement, with the 10-year bonds easing 20 basis points due to foreign inflows into the debt segment," he added. “We expect a broader range for the 10-year (government securities) to be 6.85%-7.05%." India's debt market has attracted significant inflows from overseas investors this year, totaling around ₹67,000 crore. Since September, the Indian debt market has witnessed inflows to the tune of ₹1.1 trillion.

This, coupled with the attractive yield differential compared to other emerging markets, has made the Indian rupee a relatively stable performer in the region. The JPMorgan Emerging Market Index, with over $200 billion in assets, is expected to passively allocate around $25 billion to Indian bonds over the next 10 months. Jayesh Mehta, vice chairman and chief executive of DSP Finance, said RBI would have to ensure enough supply of bonds to meet the increasing demand.

"New foreign buyers are going to come at a time when government borrowing for the fiscal year is expected to be less. We are going to see demand overpowering supply this year and RBI will have to sell bonds if it wants to avoid yields going near the repo rate," said Mehta. Also read | India’s inclusion in JPMorgan’s bond index needs sober analysis On the potential