Foreign portfolio investors have been subdued in their response to the entry of Indian government bonds in the JP Morgan index — putting around ₹5,458 crore into bonds under the category of fully accessible route (FAR) securities in the eight sessions since their entry on June 28.
Expectations were that the inclusion will lead to inflows of $25-30 billion when India’s weightage will peak at 10 per cent in March 2025.
JP Morgan will include 29 Indian government securities in its emerging market index from June 28 over a 10-month period, during which the weightage on the bonds will go up to 10 per cent from 1 per cent.
The FAR list was introduced by the RBI in 2020, and they include bonds where there are no limits on foreign holdings.
Bond market circles said the FPI response should be considered over a broader horizon. They have been raising their exposure in the FAR bonds since September 2023, when JP Morgan announced the inclusion of Indian government bonds.
FPI investment jumped to ₹1.85 lakh crore on June 27, 2024 — a day before the entry — from ₹96,661 crore in September, an increase of 91 per cent.
“The bond inclusion not only reversed earlier trends of net outflows, but also enhanced liquidity in India’s bond market. This also supports the broader financial stability by diversifying funding sources and reducing reliance on domestic capital,” a note from Prabhudas Lilladher said.
The rupee stayed range-bound and settled four paise lower at 83.53 against the dollar on Wednesday amid rising crude oil prices overseas.
