India Celebrates Stellar Beginnings in 2023 with Record Bond Performance

Initiating the year on a prosperous note, Indian bonds have seen their most significant January upsurge since 2019. This leap forward is largely attributed to the intensified influx of foreign investments in anticipation of the country's integration into a prominent global index.

A Flourishing Start

Historically, the onset of the new year has brought about a robust performance for Indian bonds. Reinforced by a surge of foreign capital, January 2023 marked a noteworthy period for bond markets as the 10-year benchmark bond yields dipped three basis points, settling at 7.14%. This shift comes as international investors injected approximately $2 billion into local securities that are prepped for inclusion in JPMorgan Chase & Co’s emerging market index by June.

Foreign Investment and Fiscal Prospects

The landscape for Indian debt appears increasingly promising as it braces for potential foreign investments that could be as high as $40 billion, a consequence of the imminent index inclusion. With the federal budget revealing near-record borrowings for the forthcoming fiscal year, foreign investors are expected to play a critical role in buttressing India's borrowing needs.

The commendable performance of Indian bonds in January is ascribed to investors’ growing confidence in the direction of global and emerging market (EM) policies, alongside positioning themselves strategically before the actual inclusion occurs. Industry experts like Aditya Gore, the head of international coverage for fixed income at Nuvama Wealth Management, acknowledge this trend of ‘pre-positioning’ flows as a significant contribution to the January gains.

Index Inclusion and Its Impact

In December, Bloomberg Index Services Ltd. had disclosed a proposal to integrate India’s Fully Accessible Route (FAR) bonds into its emerging market local currency index. FAR bonds, uniquely accessible to foreign investors without restrictions, are top contenders for global index inclusion. Such an inclusion is expected to further bolster the attractiveness of Indian bonds to a worldwide investor audience.

India, Bonds, Investment