MUMBAI: Foreign investment in Indian government bonds saw a remarkable jump in the last three months of 2023, with JPMorgan’s decision to add the debt to its indexes boosting inflows to a six-year high.

       Overseas investors net bought government bonds worth 350 billion rupees in October-December, pushing the full-year tally to 598 billion rupees, the highest since 2017, clearing house data showed.

       Fund managers expect more inflows in the new year.

       “We are positive on India into 2024 and also expect inflows into the local currency asset class,” said Jean-Charles Sambor, head of emerging markets, fixed income at BNP Paribas Asset Management.

       India’s inflation should be contained and fiscal risks well-controlled, and this, along with rate cuts from the US Federal Reserve (Fed), could push the 10-year benchmark bond yield to below 7%, Sambor said.

       In September, JPMorgan announced it will include some Indian bonds in the Government Bond Index-Emerging Markets and its index suite from June. This should lead to incremental inflows of around US$25bil into bonds, according to analysts.

       India’s 10-year benchmark bond yield was trading at 7.20% yesterday, after falling 15 basis points (bps) in 2023. The yield had jumped in the previous year as central banks across the world tightened monetary policy, hurting demand for emerging-market assets.

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       Now, the Fed has indicated it is ready to cut interest rates in 2024 and many expect the Reserve Bank of India (RBI) to follow suit.

       “Foreign inflows in bonds should continue due to (index) inclusion and could see a boost if the Fed cuts rates aggressively, as that will enhance the yield differentials,” Andrew Holland, chief executive of Avendus Capital Public Markets Alternate Strategies, said. — Reuters