Overseas funds stepped up sale of India’s sovereign bonds in October as India’s inclusion into the JPMorgan Emerging Market Bond Index could be delayed by a year, reported Business Line.
They sold government bonds worth nearly ₹2,500 crore to end a seven-month straight buying streak, data show.
For the FPIs, India’s sovereign bond market has always been less attractive than equities. But between April and September, FPIs had gone on a buying spree of India’s sovereign bonds on reports that JP Morgan was looking to include India in its emerging markets bond index.
This could have led to inflows worth $30-40 billion to the government bonds in the next few years. Foreign portfolio investors bought government bonds worth more than ₹5,000 crore in the six months starting April.
However, JP Morgan recently stated that it was still evaluating India’s inclusion. Overall, the FPIs hold ₹1.25-lakh crore worth of government securities and paper. India has a $1-trillion sovereign debt market.
“A bulk of this was just speculative money that moved in and out sensing a quick opportunity. FPI buying into government bonds was based on anticipation of JPMorgan’s inclusion of India into its bond index, which since did not happen, led to natural unwinding.