BIG NEWS : India’s government bond outflows in April an aberration, say analysts

BIG NEWS

tvrfinnews.com

BIG NEWS : A large part of these outflows have happened on the back of weakness in the local currency and a jump in U.S. yields as investors repriced rate cut expectations, they said.

analysts believe the high level of outflows from Indian government bonds in April is a temporary situation. Here’s a quick breakdown:

  • Outflows in April: Foreign investors sold a significant amount of Indian government bonds in April, marking the highest monthly outflow since the COVID-19 pandemic. The value reached ₹149.5 billion rupees ($1.79 billion).
  • BIG NEWS
  • Analysts’ view: This is seen as an aberration, not a long-term trend. They expect inflows to resume in the coming months.Reasons for outflows: There are a couple of factors that caused this:

    • A weakening Indian rupee.

    • Rising U.S. bond yields, which made U.S. bonds more attractive to investors

However, analysts believe India’s bond market has strong fundamentals and remains appealing compared to other emerging markets.

BIG NEWS

The recent sharp foreign investor selling in Indian government bonds in April, marking the highest monthly sales since the Covid-19 pandemic, is only an aberration, with inflows likely to continue in the coming months, senior market participants said. BIG NEWS

A large part of these outflows have happened on the back of weakness in the local currency and a jump in U.S. yields as investors repriced rate cut expectations, they said. BIG NEWS

“We are not expecting large-scale outflows because of rupee weakness or consistent dollar strength; the recent drop in rupee will not lead to a change in our outlook,” said Parul Mittal Sinha, India head of financial markets at Standard Chartered Bank. BIG NEWS

Foreign investors sold bonds worth 149.5 billion rupees ($1.79 billion) on a net basis in April, the highest in the four years, after net purchases of bonds worth 816 billion rupees between October and March. BIG NEWS

April sales include the net sale of 99 billion rupees of bonds under the Fully Accessible Route (FAR) that are due to be included in JPMorgan’s index from June, marking the largest ever monthly sale since the category was carved out in 2020. BIG NEWS

“There is broad caution in terms of emerging markets, but India is benefiting as it has a lower co-relation and lower beta vis-à-vis U.S. yields,” said Mitul Kotecha, head of currency and emerging market macro strategy for Asia at Barclays. BIG NEWS

The rupee hit a record low in April, while the 10-year U.S. yield jumped 49 basis points, worrying investors, but the Indian benchmark yield only rose 13 bps as local fundamentals stayed supportive. BIG NEWS

Sinha anticipates inflows of $25-$30 billion going ahead as she believes index trackers are yet to bring in their funds. BIG NEWS

Barclays’ Kotecha eyes $20-$25 billion, with upside risks as an attractive carry, stable currency, and a positive macro backdrop and fiscal picture make Indian bonds attractive. BIG NEWS

Rick Cheung, portfolio manager for emerging market debt at BNP Paribas Asset Management continues to remain bullish and expects the benchmark yield to ease below 7% in the near term from 7.17% currently.BIG NEWS

ere’s a breakdown of the news about India’s government bond outflows in April: BIG NEWS

What Happened:

  • In April 2024, foreign investors sold a significant amount of Indian government bonds – 149.5 billion rupees ($1.79 billion) – marking the highest monthly outflow since the COVID-19 pandemic.
  • This came after a period of strong inflows – 816 billion rupees net purchases between October 2023 and March 2024. BIG NEWS

Why is it Considered an Aberration:

  • Analysts believe this is a temporary setback, not a long-term trend. They expect inflows to resume in the coming months.
  • Several factors contributed to the April outflows:
    • A weakening Indian rupee (INR)
    • Rising U.S. bond yields (investors found U.S. bonds more attractive)
    • Reassessment of potential interest rate cuts in India BIG NEWS

Analyst Viewpoint:

  • Experts point out that India’s bond market has some advantages compared to others:
    • Lower correlation with U.S. yields
    • Attractive carry (potential for higher returns)
    • Relatively stable currency (compared to other emerging markets)
    • Positive economic outlook BIG NEWS

Expected Future:

  • Analysts predict renewed inflows of foreign investment into Indian government bonds. Estimates range from $20-$35 billion. BIG NEWS

In Short:

There was a surprising outflow of foreign investment from Indian government bonds in April. However, analysts view this as a temporary blip and expect inflows to pick up again due to India’s strong economic fundamentals. BIG NEWS

tvrfinnews.com

Leave a Reply

Your email address will not be published. Required fields are marked *