Indian bonds See Renewed Foreign Investor's Interest as Global Index Inclusion Nears

Indian bonds are once again gaining the interest of foreign investors after a downturn in April. The momentum is largely being driven by the upcoming addition of these bonds to major global index by this month's end.

According to a report by Bloomberg, there has been a massive rise in net inflows amounting to $10 billion since September, following JPMorgan Chase & Co.'s announcement to include these bonds.

After the election results, which led to the formation of Prime Minister Narendra Modi's coalition government, the overall inflows have helped to cool off yields. The yield on 10-year government bonds has decreased by eight basis points to 6.98 per cent from its peak earlier this month.

Global investment funds bought a net total of 73.5 billion rupees ($881 million) in India's bonds eligible for index inclusion this month (as of June 18). This follows purchases amounting to about 52 billion rupees in May. In April, these funds sold bonds through the Fully Accessible Route amounting to 98.3 billion rupees, according to data from the Clearing Corporation of India.

The Fully Accessible Route (FAR) regulation allows Non-Resident Indians (NRI) retail investors to invest in Government Securities without any restrictions. NRIs have the option to invest depending on the terms of the investment scheme.

These purchases are expected to provide additional support, along with dividend payment from the central bank to the government prior to the annual budget.

From next year, Bloomberg Index Services Ltd. will also start the inclusion of some Indian bonds in its emerging market local currency index.