Indian bonds have already been acquired by foreign institutional investors in 2023 for $840 million. They were net bond sellers in the years 2022 and 2021, therefore this represents a shift in the pattern.
The world’s central banks have started along a path to control inflation. Rising bond rates as a result of their actions are at four-and-a-half-year high levels. According to the research, the Indian bond market is comparable to other markets and has once again converted international investors into net purchasers of Indian bonds after a two-year hiatus.
The study continues, “While the shift is not a substantial one in and of itself, it is important from the standpoint of the path it has gone.” It implies that foreign portfolio investors (FPIs) have picked up interest in the Indian bond market once again. A further rate increase is anticipated in the future, according to the Reserve Bank of India’s (RBI) most recent Monetary Policy Committee announcement.
In particular, the RBI raised the policy repo rate by 25 basis points to 6.5% on February 8. Since May 2022, the rate has risen by 250 basis points.
Madan Sabnavis, the chief economist of Bank of Baroda, is mentioned in the paper as noting that “the flow of FPI into debt depends on variables such as interest rate difference, economic prospects of a nation, and stability in the currency rate.”
“The rates appear appealing because the RBI is proactive and paying attention to what is happening in the west. India will fare better overall, and its currency has been less volatile and more stable than that of other nations. We have scored because of this. One cannot, however, be certain that they will remain because it also depends on alternatives in the west and the total amount of investible resources available, he continued.
It is crucial to remember that in 2021 and 2022, foreign investors sold bonds worth an average of $7-8 million per day. According to the report, they sold bonds totaling $1.6 billion in 2021 and $2.01 billion in 2022.