India to remain on alert for 'hot money' after bond index inclusion

By Nikunj Ohri and Sarita Chaganti Singh NEW DELHI (Reuters) -India's government said on Tuesday that it had maintained its plans to borrow 6.55 trillion rupees ($78.72 billion) through bond issues in

Foreign portfolio investors (FPIs) have purchased ₹71,817 crore - or around $8.7 billion - worth of Indian government bonds since September 22, the day JP Morgan announced the index inclusion, latest data by Clearing Corporation of India Limited (CCIL) showed. To be sure, for the whole of 2023, overall FPI investment in Indian debt - including corporate bonds - was $8.3 billion.

India Business News: PM Modi's visit to the US is being timed well with India's buzzing economy and equity benchmarks at record highs. The country's burgeoning consumer ma

India Business News: Since India's significant inclusion in key global bond indexes, as announced by JPMorgan Chase & Co in September, the country has seen a remarkable in

India's net government borrowing in the next fiscal is likely to remain largely unchanged. The central government is expected to target a narrower fiscal deficit of 5.3%-5.6% of GDP in FY25, leading to a net borrowing of 11.80 trillion to 12.20 trillion rupees. Foreign investors are expected to invest $25 billion-$30 billion in government debt, with a significant portion being absorbed by foreign portfolio investment. This increase in foreign portfolio investment is driven by the inclusion of government bonds in the JPMorgan emerging market debt index starting June 2024.

Bloomberg proposes to include India FAR government securities in the Bloomberg EM Local Currency Index, which will ensure flows into the Indian markets. Interest rate cuts may be announced in the US, potentially leading to a fall in the Dollar index. FDI inflows in India have been increasing, reaching $85 billion in FY 2021-2022. The Indian government's pro-growth policies and the China-plus-one doctrine are expected to further boost FDI. Investors should consider adding duration funds to their fixed income portfolio and investing in attractively-valued companies in the manufacturing sector.

The Indian government is likely to surpass its fiscal year target for dividends from state-run companies by at least INR 120 billion ($1.4 billion), potentially reaching INR 550-600 billion. This excess is expected to partially offset a shortfall in revenue from equity sales in state-run enterprises, projected to be less than INR 300 billion, representing a over-40% shortfall.

Indian companies experienced the largest influx of foreign investment in their bonds in five years as the countrys largest-ever low-grade local currency debt sale attracted overseas investors enticed by the high yields. Goswami Infratech, a Shapoorji Pallonji group company, raised INR 143 billion ($1.7 billion) by selling zero-coupon bonds through private placement, offering a yield of 18.75%. This surge in interest resulted in foreign investors buying INR 47.1 billion of Indian local company debt on Wednesday, the highest inflow since 2018. The positive sentiment is due to strong economic growth, improved corporate balance sheets, and the Indian central bank's decision to pause interest rate hikes.

JP Morgan included Indian bonds in its widely-tracked emerging markets bond index, exposing them to foreign investors. Finance Ministry officials and market analysts both lauded move.

In September, JPMorgan Chase & Co. said it will add Indian government bonds will be incorporated into the Government Bond Index-Emerging Markets (GBI-EM) index and its index suite.