With the perspective of interest rate cuts on the horizon and the rupee remains near historic lows, offshore investors Since May, foreign investors have bought about $7 billion net of the South Asian country’s bonds. That’s more than double the sum of net purchases by Indonesia, to which it is often compared, according to data compiled by Bloomberg.
The flow of money into India, the world’s fastest-growing economy, has been so strong that policymakers have even tried to temper enthusiasm, though with little success. The country’s stocks, which were recently added to a key gauge of JPMorgan Chase & Co., are some of the best performers in Asia this year.
“India is in a privileged position from a macroeconomic perspective and also from a monetary policy perspective,” said Jenny Zeng, chief investment officer for Asia Pacific fixed income at Allianz Global Investors Apac Ltd.
Zeng is investing in five-year bonds, citing the country’s domestically driven economy. “India is not as vulnerable to external shocks as, say, Indonesia,” he said.
Inclusion in JPMorgan’s flagship emerging bond index It was a defining moment for the Indian market, which the government had long sought to protect from the whims of foreign funds by enacting complex regulation.
A large local investor base and a central bank that regularly intervenes to curb currency swings only add to the country’s appeal, which has grown amid financial market swings triggered by U.S. politics, war in the Middle East and rising interest rates in Japan. The lackluster state of China’s economy has also encouraged investors to look for an alternative.
Foreign investors Foreign investors hold just 3 percent of India’s $1.3 trillion government bond market. Among emerging Asia’s currencies, the rupee is one of the least volatile relative to the dollar, data compiled by Bloomberg show.
“Inclusion in the index is perhaps one factor” contributing to a positive view, said Manpreet Gill, chief investment officer for Africa, the Middle East and Europe at Standard Chartered Plc. “We view bond yields as attractive relative to options available in other emerging markets, the level of dollar bond yields and the stability of the Indian rupee, which has helped yields hold up well for international investors as well.”
BloombergJPMorgan’s index bonds are part of a special category of Indian debt that is freely available to foreigners, known as Fully Accessible Route notes. Just weeks after the South Asian country’s bonds were added to the gauge in late June, the index has been downgraded to 1.5% in 2018. Reserve Bank of India said it would exclude any new issuance of bonds with maturities of 14 years and 30 years from the FAR.
The RBI announcement was seen as a move to protect the debt market from speculative money, but the steady flow of capital has continued, especially since the rule change does not apply to existing securities.
India is “one of the nicest stories in the whole index,” said Carl Vermassen, a portfolio manager at Vontobel Asset Management AG, who has bought bonds with maturities of four to eight years. However, with so much attention on India’s addition to the index, the theme is probably a bit overhyped, given the low foreign participation at present, he added.
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