Govt, RBI's bond measures pull 8 months of FPI money in 2 weeks, Pg13

Key Highlights:

• Measures by the government and the Reserve Bank of India (RBI) on June 5 led to Foreign Portfolio Investors (FPIs) investing $2 billion in Fully Accessible Route (FAR) bonds within two weeks.
• This inflow is nearly equivalent to the total FPI investment in FAR bonds over the preceding eight months.
• The June inflows into FAR bonds reached $2.2 billion, marking the highest in 15 months.
• The measures included the removal of capital gains taxes and withholding tax on FPI investments in government bonds.

Detailed Insights:

• The National Securities Depository Ltd (NSDL) data indicates consistent net buying of FAR bonds by FPIs since the tax changes.
• Foreign investors have shown renewed interest in Indian rupee debt, partly due to expectations of inclusion in the Bloomberg Global Aggregate Bond Index.
• Inclusion in the Bloomberg Global Aggregate Bond Index could attract an estimated $20 billion to $30 billion in passive foreign funds over 10 months.
• India's government debt has already been added to bond indices of JPMorgan, Bloomberg's Emerging Market Local Currency Index, and FTSE Russell.
• The yield on the benchmark 10-year Indian government bond decreased by 22 basis points to 6.77% following these developments.
• Despite bond inflows, FPIs continued to sell Indian equities, with net sales reaching $5.55 billion in June, leading to an overall net outflow of $562 million across all categories.

Key Concepts Involved:

• Fully Accessible Route (FAR) bonds: A category of Indian government bonds where foreign investors can invest without any restrictions.
• Foreign Portfolio Investors (FPIs): Overseas entities that invest in the financial assets of a country, including stocks and bonds.
• Bond Yield: The return an investor receives on a bond, which moves inversely to its price.
• Bloomberg Global Aggregate Bond Index: A widely tracked global bond index whose inclusion can significantly attract passive foreign investment.