Indian sovereign bond inflows cool for second week amid index inclusion

By Malavika Kaur Makol

Overseas investments into India’s sovereign bonds slowed for a second straight week as India’s sovereign bonds joined a key global index.
 

Inflows into the so-called fully accessible route bonds, slowed to 35.9 billion rupees ($430 million) in the week through July 5, from 46.6 billion rupees in the previous week, according to the Clearing Corporation of India Ltd. data. About 75% of the FAR bonds were added to JPMorgan Chase & Co.’s emerging-market indexes on June 28.

Investors had already positioned for India’s index entry and the inflows are probably cooling now as focus shifts to fundamentals. A similar response was seen in China’s case when its bonds were added to global gauges about five years ago.

To be sure, inflows in the week after India’s inclusion are above the weekly average of 21.7 billion rupees over the past six months, according to Bloomberg calculations. Some market watchers are optimistic demand for India’s bonds is here to stay.

“Foreign portfolio investor demand will continue, and the pre-positioning which has taken place isn’t as material as some think,” said Nathan Sribalasundaram, rates strategist at Nomura Holdings Inc. “Onshore demand too in the long end will remain.”

India’s FAR bonds have seen eight straight weeks of inflows, attracting more than $11 billion since the inclusion announcement in September. Nomura and Goldman Sachs Group Inc. are forecasting as much as $3 billion of monthly inflows over the next few months as India’s initial weight of 1% on the index reaches 10% by March.