Global funds are showing strong interest in India’s sovereign bonds as they prepare to be included in global debt indexes, which will increase demand for government borrowing in the upcoming fiscal year.
According to a Bloomberg report, Delhi plans to borrow $183 billion for the year starting April 1, which is lower than the 15.43 trillion rupees set for this fiscal year.
Since JPMorgan Chase & Co announced the inclusion of Indian bonds in September, global funds have invested over 500 billion rupees in index-eligible debt. HSBC Asset Management predicts that India’s bonds will attract $100 billion in inflows in the coming years.
Foreign investors currently hold about 2% of India’s sovereign debt market. JPMorgan will add Indian government bonds to its benchmark emerging-market index in June, and Bloomberg Index Services is seeking investor feedback to include the debt in its EM bond index from September.
Standard Chartered Plc. economists, including Anubhuti Sahay, wrote in a note that they anticipate foreign investor inflows of $20 billion to significantly impact demand dynamics in FY25. They expect these inflows to increase once the actual inclusion begins in June.
Given the Reserve Bank of India’s commitment to maintaining high interest rates, a favorable demand-supply environment for government debt will be welcomed. Finance Minister Nirmala Sitharaman will present an interim budget on February 1 ahead of the general election scheduled for May.
With Prime Minister Modi expected to win a third term, the government is likely to maintain fiscal conservatism. A Bloomberg survey shows that the fiscal deficit is projected to decrease from an estimated 5.9% in the current year to 5.4%.
