FPI investments in FAR securities steadily rise over 10% since bonds enter JP Morgan index

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Investments by the foreign portfolio investors (FPI) in government securities under the Fully Accessible Route (FAR) has shot up over 10 percent on a monthly basis since the Indian bonds entered the JP Morgan index.

“As Fed starts cutting rates, which looks quite imminent in the current month, spreads may widen further as US treasury yields are expected to fall more than the Indian government bonds during reversal and wider spreads could influence capital flows between markets,” said Mataprasad Pandey, vice-president of Arete Capital Service.

FPI investment in FAR securities stood at Rs 2.30 lakh crore as on August 31, up 11.62 percent month-on-month, and from Rs 2.06 lakh crore as on July 31, according to the Clearing Corporation of India (CCIL) data.

On June 28, JP Morgan included 29 Indian government securities under FAR in its emerging market index. India carries a 1 percent weight in the index, with planned incremental increases each month until March 2025.

FAR enables non-residents to invest in specified Government of India dated securities without any investment ceilings.

On September 22, 2023, JPMorgan Chase & Co announced it would add the Indian government bonds to its JPMorgan Government Bond Index-Emerging Markets. The announcement fuelled a lot of interest among foreign investors in Indian bonds.

In the last few months, especially between February and May, investments by the FPIs in FAR securities remained volatile due to global and domestic uncertainties.

The increase in investment in March and May was sharply lower as compared to the initial months when the inclusion announcement took place. The FPI investment in FAR securities rose by around Rs 10,000 crore to Rs 12,000 crore between October and January.

In June, investment started picking up after the election results in India. Money market experts said this was due to a boost in investor confidence after the incumbent party was back in power.