Foreign Investment Market Growth

CCIL Data Reveals Nearly Double Foreign Inflows in FAR Securities Over 9 Months

Foreign portfolio investments (FPI) in Indian central government securities have surged dramatically in recent months. According to data from the Clearing Corporation of India (CCIL), investments in Fully Accessible Route (FAR) securities have nearly doubled in nine months, largely driven by JP Morgan’s decision to include Indian debt in its index. This article explores the reasons behind this influx, the impact of JP Morgan’s inclusion, and the future outlook for FPI in FAR securities.

Overview of FAR Securities

Definition of FAR Securities

FAR securities refer to central government bonds designated under the Fully Accessible Route. These securities allow non-resident investors to invest without any restrictions.

Importance of FAR Securities in the Indian Market

FAR securities play a crucial role in attracting foreign investments to the Indian debt market. By providing unrestricted access, they increase liquidity and stability.

Recent Trends in FPI Inflows

Statistical Data on FPI Inflows

As of July 16, 2024, FPI investments in FAR securities reached Rs 1.93 trillion, a significant increase from Rs 94,709 crore on September 22, 2023. The inflows crossed the Rs 1 trillion mark on October 16, 2023.

Key Milestones in Investment Growth

Key milestones include JP Morgan’s announcement in September 2023 and the subsequent inclusion process beginning in June 2024. These events catalyzed substantial inflows into FAR securities.

Impact of JP Morgan’s Inclusion

Announcement and Immediate Effects

JP Morgan’s announcement to include Indian government bonds in its GBI-EM index has been a game-changer. Market participants began increasing their investments even before the actual inclusion, anticipating future gains.

Long-term Projections

Experts predict that the inflows will continue to rise, potentially reaching Rs 2.5 trillion in the next 5-6 months. The phased inclusion process, with a 1% weight increase each month, supports sustained growth.

Market Participant Insights

Expert Opinions and Analysis

Vijay Sharma, Senior Executive Vice-President at PNB Gilts, attributes the doubling of investments to JP Morgan’s inclusion. He expects the trend to continue, reaching Rs 2.5 trillion soon.

Madan Sabnavis, Chief Economist at Bank of Baroda, notes the rapid build-up to June 2024 and predicts continued, albeit moderated, inflows due to the gradual increase in index weight.

Eligibility Criteria for JP Morgan Index

Requirements for Bond Inclusion

To be included in JP Morgan’s GBI-EM index, bonds must have a face value of over $1 billion and a remaining maturity of more than 2.5 years. Currently, 29 out of 38 FAR-designated bonds meet these criteria.

Current Eligible Bonds

These bonds are all central government securities issued by the Reserve Bank of India under FAR and maturing after December 31, 2026.

Future Projections

Expected Growth in FPI Inflows

Market experts anticipate that FPI inflows will maintain their momentum, potentially hitting Rs 2.5 trillion within the next 5-6 months. The structured inclusion process supports these optimistic projections.

Factors Influencing Future Investments

Factors such as India’s economic stability, bond yields, and global market conditions will influence future FPI inflows. The gradual increase in the index weight will also play a significant role.

Conclusion

The dramatic increase in foreign inflows into FAR securities underscores the growing confidence in Indian government bonds. JP Morgan’s inclusion of these securities in its GBI-EM index has been a pivotal factor, attracting substantial investments and setting the stage for continued growth. As market conditions evolve, the sustained interest from foreign investors is expected to bolster the Indian debt market further.