The Indian sovereign bond market is currently gaining foreign equity investors.
Nowadays, interest in the mentioned market of the South Asian country is demonstrated by those investors who use securities as collateral to comply with trading margin requirements.
The inclusion of the nation’s government debt in JPMorgan Chase & Co.’s emerging-market bond index last month has enhanced their acceptance as collateral. This innovation is attractive to foreign investors because they can earn on their bond holdings, unlike traditional cash or cash-equivalent margin postings.
Vikas Jain, head of India fixed income, currencies, and commodities trading at Bank of America Corp., says that the mentioned investors bought front-end government securities with a maturity of 1-2 years. Since India’s inclusion in the list in September, there has been an influx of funds amounting to $1.5 billion.
The combination of high yields, a stable currency, and the possibility of increasing capital is creating a new segment of demand for government securities in the South Asian country. According to data collected by the media, India’s sovereign debt has returned so far 5.7% since the beginning of the current year. By comparison, Indonesia’s local currency bonds gained 2%.
Rajeev De Mello, global asset portfolio manager at Gama Asset Management SA., said better inflation data should allow the Reserve Bank of India to ease monetary policy, while expectations for the upcoming budget are favorable from a fiscal deficit perspective.
Foreigners have invested 978 billion rupees ($11.7 billion) in indexed bonds since the JPMorgan Chase announced their inclusion last year.
The South Asian country has raised $2.6 billion in capital inflows since the beginning of the current year. In 2023, net foreign investment in India increased by $21 billion. It is worth noting that the South Asian country is a kind of area of interest for overseas investors who do not opt for financial injections in China.
Data from the Indian securities regulator suggests that foreign investors can use government securities, corporate bonds, cash, and triple-A rated overseas sovereign equities as collateral to meet their margin requirements for trades in both cash and equity derivatives segments, as and derivative financial instruments.
Also this week, Bank of America Corp. said many global lenders are targeting shorter maturities when buying the South Asian country’s sovereign bonds. Data from the Clearing Corp. of India show that foreign banks have bought nearly 600 billion rupees in all maturities since early June.
As we have reported earlier, State Bank of India Rolls Out Web-Based Invoice Financing Solution.
