On a net inflow of $6 billion in a month, foreign banks collectively bullish on the Indian bond market
Deutsche Bank, HSBC HOLDINGS, and others have been buying Indian bonds in large quantities. On one hand, Indian bonds were included in the JPMorgan Chase Emerging Markets Bond Index at the end of June. On the other hand, the results of the Indian general elections have strengthened political continuity, enhancing market optimism towards India
Recently, foreign banks have become the "largest buyers" of Indian sovereign bonds.
According to media reports on Tuesday, data from the Indian Clearing Corporation shows that since June 1st, foreign banks have net purchased over 500 billion rupees (approximately $6 billion) of Indian bonds, far exceeding the net inflow of around 200 billion rupees into the index-eligible bonds during the same period. This indicates that global banks, which often act as custodians for clients to purchase bonds, are also heavily buying and depositing bonds into their own accounts.
At the same time, data from the Indian Clearing Corporation shows that in June, foreign banks were net buyers of bonds on all days except for 4 days. In contrast, Indian state-owned banks, mutual funds, and private banks were net sellers.
Deutsche Bank, HSBC Holdings, and others have been actively buying Indian bonds, partly because Indian bonds were included in the JPMorgan Emerging Market Bond Index at the end of June, and also due to the strengthening of political continuity following the Indian election results, both of which have enhanced market optimism towards India.
Nitin Agarwal, Head of Trading at ANZ Bank Group in India, stated:
Banks may have had lighter positions before the elections, and after the election results, they covered their short positions and started going long. India's macro fundamentals remain strong.
The increase in demand is also related to a popular derivative trading among banks and insurance companies, known as bond forward rate agreements. This strategy helps insurance companies lock in longer-term yields without adding more debt to their balance sheets. Banks, on the other hand, collect margins by holding these bonds until maturity.
Parul Mittal Sinha, Head of Financial Markets at Standard Chartered Bank in India, commented:
India's inflation is trending downwards, with an average of 4.5% expected for the fiscal year ending in March next year, providing a possibility for rate cuts. If global yields start to decline and the Reserve Bank of India also begins cutting rates, the intensity of fund inflows may increase