By Dharamraj Dhutia
MUMBAI (Reuters) -Foreign ownership of Indian government bonds touched a record high, with investors prizing their diversification value and potential for gains with more rate cuts, even as the central bank protects the rupee.
Foreign investors held 3.11 trillion rupees ($35.35 billion) of government bonds under the Fully Accessible Route (FAR) as on October 27, accounting for approximately 6.8% of the outstanding issuance.
A significant proportion of FAR-designated bonds are included in global indexes, undergirding demand.
“Positive demand for emerging market local debt and dollar weakness is driving demand for diversification,” said Shamaila Khan, head of fixed income emerging markets and Asia Pacific at UBS Asset Management.
India joined JPMorgan’s emerging market debt index in June 2024, Bloomberg’s debt index in January 2025, and was recently added to FTSE Russell’s emerging market debt index from September.
Radhika Rao, executive director and senior economist at DBS Bank, noted, “relatively attractive returns, duration interest, better debt supply mix and a favourable macro environment, including low inflation and dovish guidance, have stoked interest in domestic bonds.”
Rao expects a central bank rate cut in December.
The Reserve Bank of India has cut its key policy rate by 100 basis points so far in 2025 and signaled further easing at its latest meeting.
The next monetary policy decision is due in early December, with most analysts predicting a 25 basis-point reduction, while Nomura, MUFG, and Capital Economics also anticipate another 25 bps cut in February.
Currency management by the central bank has also bolstered foreign investor confidence. The RBI is estimated to have sold $5 billion on a single day this month to support the rupee, preventing it from reaching record lows.
“The currency has been supported by the Reserve Bank of India recently, and that helps sentiment,” UBS Asset Management’s Khan added.
Trade negotiations between India and the United States remain on the radar, though foreign investors appear unfazed by potential tariff issues.
Philippe Gijsels, chief strategy officer at BNP Paribas Fortis, emphasized that India’s political stability is a draw for capital flows.
“A stable political country like India will continue to attract capital flows, even in a world in which the tariff environment may be challenging.”
($1 = 88.2950 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Ronojoy Mazumdar)
Comments