FAR securities receive 60,000 crore inflows since JP Morgan inclusion

FPI investment in FAR securities had doubled, surpassing the Rs. 2 trillion mark within nine months of announcement of JP Morgan including Indian debt in its index

Since the inclusion of domestic government bonds in the JP Morgan indices on June 28 this year, government securities designated under the fully accessible route (FAR) have received inflows of around Rs 60,000 crore so far.

 

Investment in FAR securities had exceeded Rs 1 trillion on October 16 last year.

 

In September last year, JP Morgan had said it would include government paper issued by the Reserve Bank of India (RBI) under the FAR in its widely tracked global bond index (emerging markets).

 

In October so far, foreign portfolio investors sold FAR securities worth Rs 5,000 crore, the Clearing Corporation of India (CCIL) data showed, due to a rise in crude oil prices and geopolitical tensions, said market participants. 

 

Uncertainty around the US presidential election and China’s stimulus measures and a subsequent rebound in its stock markets further weighed on the inflows.

 

“FPIs are selling both debt and equities because of geopolitical situations,” said V R C Reddy, treasury head, Karur Vysya Bank.

 

“The chances of Donald Trump winning in America are influencing this. The ‘Trump win’ narrative is seen to strengthen the dollar and push US yields higher, driven by anticipated populist measures that could increase borrowing, inflation, and yields. Additionally, the China factor adds another layer of caution for foreign investors,” he added.

 

Of the 38 bonds under the FAR, 27 have met the eligibility criteria for the JP Morgan bond index, which requires a face value of over $1 billion and a remaining maturity of more than two and a half years.

 

FPIs’ investment in the Indian debt market reversed in October, with the first net outflow since April.

 

Foreign investors have sold a net Rs 5,156 crore so far. In September, they had net bought debt worth Rs 1,278 crore.

 

“The benchmark 10-year government bond yield is expected to trade higher by 4-5 basis points in the near term until the results of the US elections are out,” said the treasury at a private bank. “Benchmark yields, however, are finding support from domestic demand, including pension funds and provident funds. Pending guidelines on the liquidity coverage ratio could further boost demand for government securities as banks work to meet HQLA (high-quality liquid assets) requirements,” he added.

 

The yield on the benchmark 10-year government bond settled at 6.85 per cent on Friday.

 

FPI investment in FAR securities have doubled, surpassing Rs 2 trillion within nine months of the announcement by JP Morgan.

 

The inclusion process will be phased over 10 months with a 1 per cent weighting included each month until March 31, 2025.

 

Indian bonds will have 10 per cent weighting, similar to China.