FPI investment in govt securities in JP Morgan bond index doubled in 2024

Bonds

Investment by the foreign portfolio investors (FPI) in the government securities in the JP Morgan Bond index has doubled in 2024 on back of better returns compared to advanced economies, robust economic fundamentals, and least volatile rupee among Asian peers, experts said.

According to the Clearing Corporation of India Ltd, investment by FPI in the government securities (G-sec) under Fully Accessible Route (FAR) has increased to Rs 2.51 lakh crore as on December 31, as compared to Rs 1.30 lakh crore on January 1.

FAR enables non-residents to invest in specified Government of India dated securities without any investment ceilings. Most of the securities in the FAR are part of the JP Morgan Government Bond Index-Emerging Markets.

“India stands out for offering higher yields alongside robust economic fundamentals. Additionally, the Indian rupee has shown relatively low volatility compared to its peers, thanks to the continuous efforts of the RBI. This makes a strong case for increasing foreign investment in the Indian bond market,” said Mataprasad Pandey, vice-president of Arete Capital Service.

The investment by FPI has increased in the Indian government bonds after the JP Morgan Chase & Co on September 22, 2023, had announced the inclusion of Indian bonds in their global bond index.

Further, the investment gained traction after June 28, when JP Morgan included 29 Indian government securities under FAR in its emerging market index.

Since the announcement of Indian bond inclusion in global bond index by JP Morgan, and till the actual inclusion of bonds in index, FPIs' investment in FAR securities has increased around 98 percent.

However, the investment has seen some downward trend due to sharp jump in the yields on US treasury notes. When the yield on US treasury notes goes up and Indian bond yields remain stable, it reduces the spread between both and leads to FPI pulling money from India and investing in their home country for better returns.

Going ahead, money market experts believe that another two-bond inclusion next year is expected to increase flows in these bonds. Bloomberg is set to include Indian bonds in the Bloomberg Emerging Market (EM) Local Currency Government Index and related indices from January, 2025.

This will be followed by Indian bonds inclusion in FTSE Russell bond index from September 2025.