Sell Indian bonds and buy Philippine debt, says Aberdeen

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Philippines' government debt, on the other hand, is a "high-conviction" buy because inflation is receding, she said.

Philippines' 10-year bond yields are currently at around 7 percent, significantly lower than India’s 10-year bond yields at about 7.6 percent, according to Bloomberg data.

Economic metrics such as inflation and consumer prices are improving in the Philippines, Leong told Bloomberg.

Overseas funds have withdrawn a net Rs 2,700 crore from Indian government bonds in 2018, after raising holdings by about Rs 6,000 crore in the last quarter of 2018.

Investors are worried that the government is granting farm loan waivers at a time when income tax collection and asset sales are falling short of estimates.

Leong said the base case is that the Reserve Bank of India (RBI) will continue supporting the bond market.

India's 10-year debt fell 66 basis points in the December quarter, while Philippines’ debt fell 37 basis points.

Aberdeen is shifting its allocation from Indian sovereign bonds to quasi-sovereign and company bonds since the spreads are still quite high, Leong added.

"We've seen how quickly fiscal scares can evolve in India," she said, referring to the losses seen by state-owned banks on their bond portfolios for most of last year. "It is definitely a profit-loss worry, though that’s not my central case."