Foreign inflows into the government bond market have been slower than expected, despite Indian bonds being included in JP Morgan’s Government Bond Index – Emerging Markets. This has helped to keep yields steady, with dealers noting a lack of significant domestic cues and upcoming data releases contributing to the stable yields.
In the two trading sessions following the official inclusion of Indian bonds, the domestic debt market saw inflows of Rs 3,370 crore. Dealers remain optimistic, with one stating that even in the worst-case scenario, yields may only rise to 7.03-7.04 percent, which are still considered attractive levels for buying. Mutual funds are the only players not actively buying, as the domestic market story remains strong.
On Tuesday, the yield on the benchmark bond remained steady at 7.01 percent, slightly up from 7 percent on Friday. Profit booking and a continuous supply of government securities are factors expected to prevent major deviations in yields, according to experts in the field.
Since JPMorgan’s announcement last September regarding the inclusion of Indian government papers in the GBI-EM, foreign inflows into India’s government securities have reached $10.4 billion (about Rs 86,000 crore). The phased inclusion of these bonds will gradually increase their weightage in the index to 10 percent by March 31, 2025, similar to that of China.
Out of the 38 bonds eligible for the JPMorgan bond index, only 29 meet the criteria, including a face value of over $1 billion and a remaining maturity of more than 2.5 years. This selective inclusion has helped to attract significant foreign investment into Indian government bonds.