Union Budget 2019 India: Foreign portfolio investors (FPI) have invested nearly $500 million in Indian bond markets in just two trading sessions – July 5 and July 8 – since finance minister Nirmala Sitharaman announced a lower fiscal deficit target of 3.3% for financial year 2019-20 in her Budget speech.
Treasurers believe the 10-year benchmark yield may go down to as low as 6.40% during the year; overseas investors have been infusing funds into the bond markets in anticipation of a rate cut by the RBI. The benchmark government bond – 7.26% yielding notes maturing in 2029 – fell to a low of 6.56% on Friday and closed at a 28-month low of 6.69%. On Monday, it fell 11 basis points further to close at 6.58% while on Tuesday it closed at the same levels.
Bond markets had rallied on July 5 as the government revised the fiscal deficit target to 3.3% of GDP, 10 basis points lower than what was announced in the interim budget. It also announced it would tap overseas investors, for the first time. to raise a part of the government’s total market borrowing by issuing foreign exchange-denominated bonds. “India is stable now on the political and policy front with inflation under control. Moreover, it offers the highest real rates of return over inflation which is now well under control and the currency too is stable. It is among the most attractive markets in the emerging market pack,” said Ajay Manglunia, MD and head-institutional fixed income, JM Financial.
The government left the gross and the net market borrowing for the current financial year unchanged at Rs 7.10 lakh crore and Rs 4.73 lakh crore, respectively. Of this, around 10% would be borrowed from the foreign markets, which is around Rs 70,000 crore or $10 billion, economic affairs secretary Subhash Garg told reporters on Monday. There is a huge appetite offshore for Indian sovereign bonds, he added.
“With the best interest rates among the emerging markets, currency getting stronger against the dollar and the government bringing favourable reforms in the country, foreign investors are more comfortable and attracted towards Indian economy,” said Ritesh Bhusari, assistant vice president of treasury at Federal Bank.