Indian rupee, bonds set to be among top three Asian beneficiaries of foreign inflows, BofA Sec exec says

Indian rupee, bonds set to be among top three Asian beneficiaries of foreign inflows, BofA Sec exec says

Indian markets will likely be among the top three in Asia to attract foreign inflows once tariff-related uncertainties ease, with the rupee and local currency-denominated bonds benefiting the most, an executive from BofA Securities told Reuters.

"India within Asia should be one of the best markets for investments as they have a lot of drivers for growth which other markets do not have," David Hauner, head of global emerging markets fixed income strategy at BofA Securities, said on Tuesday.

Taiwan and South Korea could also invite investor interest, he said.

The rupee was at 85.59 on Tuesday and is nearly flat for the year after easing 2.9% in 2024. Hauner expects the unit to appreciate to 84 against the U.S. dollar by end-2025.

While the rupee could rise above 84 next year, aided by a weaker greenback, Hauner said he expects it to stay around that level as the central bank accumulates reserves.

A soft dollar and the possibility of rate cuts from emerging market central banks is likely to draw investors, Hauner added.

"I would expect that we will receive more inflows from the second half of the year, and we would see more proof that inflation globally is coming down and people will get more comfortable with EM fixed income, leading to more inflows."

U.S. bond yields have risen and the dollar has fallen this year on fears that President Donald Trump's policies will be inflationary and lead to a selloff in Treasuries.

Despite the upbeat outlook, foreign investors reduced their holdings of Indian government bonds in April and May, offloading over 320 billion rupees ($3.74 billion) on a net basis.

Hauner said the selloff was sparked by worries over the impact of trade tensions, but added that a lot of capital is parked in U.S. money market funds, which could start flowing in later this year.

BofA Securities expects the Reserve Bank of India to cut the policy repo rate by another 50 basis points over the remainder of this year. The central bank has already delivered 50 bps of reductions in 2025.

Hauner prefers India's five-year government bonds and expects yields across the bond curve to decline by 25-50 bps.

The five-year bond yield was at 5.85% on Tuesday.