Due to India’s entry in JP Morgan’s Emerging Market Global Bond Index and strong yields, foreign portfolio investment in the domestic debt market reached a 6-year high in the month of November.
According to NSDL data, till November 29, Foreign Portfolio Investors (FPIs) have invested Rs 14,556 crore. Before this, the highest FPI investment in a month was recorded in October 2017.
High yield is attracting FPIs
According to Venkatakrishnan Srinivasan, Founder and Managing Partner, Rockfort Fincap, the high yield and attractive structure of debt instruments are attracting FPIs. Srinivasan says that there has been a sudden decline in America’s 10-year bond yield and it has reached 4.30%, while India’s 10-year bond yield is still trading around 7.25%.
‘FPIs are keeping an eye on this whole development and we are expecting some investment in Indian government bonds.’
So far this year, foreign investors have invested Rs 50,057 crore in the Indian debt market.
According to Ajay Mangalunia, Managing Director and Head of Investment-Grade Group, JM Financial Products, the yield spread between sovereign and corporate bonds will widen further, which will encourage many foreign investors apart from domestic investors.
Mangalunia says that investors coming through the FPI route can show their interest in securities with a tenure of 3 to 5 years or bond yield of 10 years.
Performance of FPIs in debt market during 1 year
India’s inclusion in JPMorgan’s GBI-EM index is expected to bring foreign investment of $25-50 billion. Besides, the possibility of India’s inclusion in the Bloomberg Global Aggregate Index will also increase.
Srinivasan says that we expect the momentum to continue slowly in the coming months as foreign investors are attracted towards high yield corporate bonds with attractive structures.
