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Bond Gauge Delay Spurs FPI Sell-off in India
4 Aug
Summary
- Foreign investors reduce Indian debt holdings post-index inclusion delay.
- Daily average inflows into Indian debt dropped to ₹300 crore in July.
- US treasury yields are becoming more attractive to investors.
Foreign investors have begun to reduce their holdings in Indian debt securities, a trend observed over the past two weeks. This comes after a key global bond index delayed its decision on including India, prompting some investors who had anticipated inclusion to lighten their positions. Daily average foreign portfolio investor (FPI) inflows into Indian debt have consequently tapered significantly, falling to approximately ₹300 crore in July from about ₹3,000 crore in June.
The yields on 10-year government bonds closed at 6.84% on Monday, with traders remaining cautious about potential US Federal Reserve interest rate hikes. The increasing attractiveness of US treasury yields, which touched 5% and are currently around 4.70%, is also influencing investor decisions. Fresh data indicating inflows through the ECB and FCNR(B) schemes, alongside cooling oil prices, are helping to offset the negative market sentiment.
Market participants are now keenly awaiting the monetary policy announcement scheduled for Wednesday. While economists polled anticipate the central bank will maintain the policy rate unchanged, all eyes will be on the Reserve Bank of India's commentary for any signals regarding future monetary policy direction.
