G-Sec prices end a shade higher on expectation of more foreign investments due to proposed bond index inclusion

Posted on by

Government Security (G-Sec) prices ended a shade higher on Tuesday as Bloomberg Index Services’ proposal to include Indian bonds, which are under the ‘Fully Accessible Route’ (FAR), to be part of its Emerging Market (EM) local currency index from September 2024 could attract foreign investments.

The aforementioned proposal comes about three months after JP Morgan’s announcement on India’s inclusion, starting June 28, 2024, in its widely tracked Government Bond Index-Emerging Markets (GBI-EM).

The inclusion of Indian bonds in JP Morgan’s GBI-EM and Bloomberg Index Services EM local currency index is expected to attract foreign investments of about $23 billion and about $3 billion, respectively, in sovereign bonds annually, according to market experts.

The price of the benchmark 10-year G-Sec (7.18 per cent GS 2033) closed 9 paise higher at ₹99.9325 (previous close: ₹99.8425) even as the yield nudged about a basis point lower to 7.1884 per cent (7.2016 per cent).

Bond prices and yields are inversely co-related and move in opposite directions.

Referring to Bloomberg Index Services’ proposal, the Bank of Baroda’s economic research team said India’s 10-year yield could see some downward bias going forward.

Rupee up

Meanwhile, the rupee on Tuesday closed 2 paise stronger at 83.1150 per dollar against the previous close of 83.1375 on robust inflows from foreign investors eyeing investment in upcoming initial public offers of companies.

Dealers say State-owned banks likely bought dollars, apparently at the central bank’s behest, to absorb the inflows.

“The rupee opened the session higher this morning at 83.0575, given positive global cues. It remained quite range-bound between 83.14 and 83.03 and traded with a slight strengthening bias following its Asian peers. It ultimately ended the session around 2 paise stronger at 83.115,” IFA Global said in a report.

Amit Pabari, MD, CR Forex Advisors, said despite the encouraging fundamentals supporting a stronger rupee, the ongoing tug-of-war between the intrinsic strength of the rupee and the RBI’s interventions has capped the rupee from appreciating to its fair value.

“The key battleground for this struggle lies at the 83 level, with importers driving demand and the RBI’s persistent dollar buying amid liquidity constraints.

“If RBI decides to loosen its hold, a significant movement of 40-50 paisa can be seen. Once the rupee successfully maintains levels below 83, it is anticipated to reach the 82.75 to 82.50 levels in the medium term,” per Pabari’s assessment.