Global investors are ramping up their holdings of Indian bonds in March, anticipating further interest rate cuts by the Reserve Bank of India (RBI), even as they retreat from local equities. Foreign purchases of Indian rupee-denominated bonds have reached $1.8 billion so far this month, surpassing any monthly total since September, according to data. In contrast, global funds have sold over $2.6 billion in Indian stocks, driven by concerns about slowing economic growth and high market valuations.
The market is betting that the RBI will implement its second interest rate cut of the year in April, enhancing the attractiveness of Indian fixed-income securities. Additionally, India’s growing yield advantage over US Treasuries and the inclusion of Indian government bonds in major global indexes have further boosted their appeal among international investors.
“Indian bonds offer a positive real yield and carry compared to US Treasuries, making them relatively attractive,” said Carol Lye, portfolio manager at Brandywine Global Investment Management. She added that Indian bond yields may fall further due to the country’s cyclical growth slowdown and the ongoing rate-cutting cycle by the RBI.
The recent slowdown in inflation has led to a revision in interest rate cut expectations, with Morgan Stanley raising its forecast for 2025 cuts to 75 basis points, up from the previous estimate of 50 basis points. India’s inflation rate fell more than expected in February, dropping below the central bank’s mid-term target of 4%.
Brandywine has a positive outlook on India, investing in supranational bonds, which are issued by multilateral agencies in local currencies. Meanwhile, PineBridge Investments Asia Ltd. expressed plans to increase its holdings of Indian bonds.
“We’re drawn to the attractive carry offered by India’s local bonds, though we’ve been surprised by the rupee’s softness against other emerging-market currencies,” said Samsara Wang, Asian sovereign analyst at PineBridge.
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