FIIs turn net buyers; invest $840 million in Indian bonds in 2023 so far

Foreign institutional investors have purchased $840 million worth of Indian bonds so far in 2023. This is a change in the trend as they were net sellers of bonds in the years 2022 and 2021, reported Moneycontrol.

Central banks around the world have embarked on a route to contain inflation. Their policy has resulted in rising bond yields sitting at four-and-a-half-year high levels. The Indian bond market is no different and has turned foreign investors into net buyers of Indian bonds after a gap of two years, says the report.

While the change is not a big one in itself, it is significant from the perspective of the direction it has taken, adds the report. It suggests a renewed interest of foreign portfolio investors (FPIs) in the Indian bond market. Additionally, the latest Monetary Policy Committee statement issued by the Reserve Bank of India (RBI) indicates one more rate hike in the times to come.

Notably, the RBI increased the policy repo rate by 25 basis points to 6.5 per cent on February 8. The rate has been increased by 250 bps since May 2022.

“The flow of FPI into debt depends on factors such as interest rate differential, growth prospects of a country, and stability in the exchange rate,” chief economist at Bank of Baroda, Madan Sabnavis, is quoted as saying in the report.

“With the RBI being proactive and following what is being done in the west, the rates look attractive. India will be a better performer on the whole and the currency has been more stable and less volatile compared with other countries. That’s why we have scored. However, one cannot be sure if they will stay as it also depends on alternatives in the west and the overall quantum of available investible resources”, he added.

It is important to note that foreign investors sold an average of $7-8 million daily in the bond market in 2021 and 2022. In total, they sold $1.6 billion in 2021 and $2.01 billion of bonds in 2022, the report added.