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Informist, Monday, Jul 22, 2024

 

--See high flows on India gilts' JP Morgan index inclusion

--Gilts' JP Morgan index inclusion may up exposure to India

--Robust FX inflows may keep rupee within comfortable range

--Favourable trade gap may keep rupee in comfortable range

 

NEW DELHI – India's recent addition to global bond indices such as those operated by JP Morgan will drive foreign portfolio investment into the country, the Economic Survey for 2023-24 (Apr-Mar) said. India's net FPI inflow reached $44.1 bln in the financial year ended Mar 31, the highest since at least 2000, and reversing net outflows over the previous two fiscal years.

 

"The recent inclusion of India’s sovereign bonds in the JP Morgan Government Bond Index-Emerging Markets is expected to contribute to higher debt inflows going forward and will likely spur demand for further exposure to India," the survey, tabled today in Parliament by Finance Minister Nirmala Sitharaman, said.

 

India was added to the JP Morgan index on Jun 28, with inclusion staggered over 10 months. A similar exercise will start with the Bloomberg local currency emerging markets index from Jan 31. Since the first inclusion was announced in September, FPIs have bought around $12 bln worth of gilts under the fully accessible route that have no limits on foreign investment. Analysts expect around $30 bln of inflows in the current fiscal from index-related purchases alone.

 

The robust inflows and comfortable trade deficits will also keep the rupee in a comfortable range, the survey said. The domestic unit was among the best performing currencies against a strong US dollar in 2023-24, aided by the Reserve Bank of India's intervention to prevent volatility in the rupee. The volatility of the dollar-rupee exchange rate was the lowest in six years in 2023-24, according to a chart in the Economic Survey.

 

"The relative stability of the rupee, despite a stronger US dollar and elevated US Treasury yields, reflects the strength of the Indian economy's sound macroeconomic fundamentals, financial stability, and improvements in external position," the survey said. 

 

On the foreign direct investment front, the survey argued that investor interest in India had not ebbed despite net FDI inflows falling to $26.5 bln in 2023-24 from $42.0 bln the previous year. Gross FDI investment was down marginally on year to just under $71 bln, while repatriation increased by nearly 50% to $44.5 bln in 2023-24.

 

"The contraction in net inflows was primarily due to a surge in repatriation/disinvestment due to many profitable exits," the survey said. "A market that allows investors to take profits and exit their investments is a healthy one."  End

 

US$1 = 83.66 rupees

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Aaryan Khanna

Edited by Rajeev Pai

 

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