Indian Bonds Shine Among Emerging Markets, But Rush May Slow Down, Says Report

Indian bonds are witnessing increased attention from investors as they set to enter the global debt index. However, this rush might slow down.

Indian bonds have performed exceptionally well among emerging markets, second only to Argentina, according to a report by Bloomberg. Factors like responsible government borrowing, high benchmark interest rates, and projections of up to $40 billion in inflows from index inclusion have all contributed to this bullish market sentiment.

As India joins JPMorgan Chase & Co.'s index on June 28, there is a chance that the hyped attention might shift back to fundamental factors. This is similar to what China has witnessed. After the inclusion takes place investors will likely refocus on overall sentiment towards emerging markets, macroeconomic indicators, and government fiscal policies.

According to Rajeev De Mello, a senior portfolio manager at GAMA Asset Management SA, active trading typically occurs before the bonds are added to global indexes. "Then you usually have some kind of pause in the market momentum, some kind of selloff,” he added.

When Chinese bonds made an entry in global indices in 2019, the initial excitement was short-lived. Eventually, yields increased, and the actual inflows were only about 10 per cent of what analysts had projected for 2021.

As of now, India's sovereign debt is increasingly being preferred by foreign investors over China's, as they look to capitalise on the nation's faster economic growth.

On top of it, concerns over geopolitical tensions and the sustainability of recent gains in Chinese government bonds are further tipping the scales in favor of India's allocations.

Since JPMorgan's announcement in September, foreign investors have already invested nearly $9 billion into India's index-eligible bonds, contributing to a decrease in yields.