Foreigners Turn Sellers of India Bonds on Index Disappointment

  • Global funds sold INR24.4bn (USD295mn) of index-eligible Indian sovereign bonds in Oct 22 after JPMorgan Chase & Co. refrained from including the debt in its gauge.
  • The outflow from the so-called Fully Accessible Route, or FAR, securities marked the first such withdrawal in seven months since Apr 22. JPMorgan decided on Oct 22 to keep INR government notes off its emerging-market sovereign bond index, citing investment hurdles including a lengthy investor registration process.
  • The selling risks fueling further losses in Indian government securities after they rounded off a second month of declines amid a rout in global debt markets. Expectations for more rate hikes from the Reserve Bank of India may weigh on the market, with a Bloomberg survey of analysts predicting that 10-year yields could climb to 7.53% by 2022-end from around 7.42% now.
  • The disappointment over non-index inclusion, a falling INR and better USD-denominated returns elsewhere drove foreigners to exit Indian debt, said Naveen Singh, head of trading at ICICI Securities Primary Dealership Ltd.
  • JPMorgan’s decision came on the heels of a similar move by FTSE Russell on Sep 22. Morgan Stanley had said Russia’s exclusion could pave the way for India to be added to emerging market gauges, potentially drawing inflows of USD30bn.

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