G-Secs see first weekly outflow after inclusion in global debt indices

Government Securities (G-Secs), which are eligible for inclusion in global debt indices, saw first weekly outflow last week after their inclusion late June in JPMorgan Chase & Co’s Government Bond Index-Emerging Markets (GBI-EM) index.

Foreign investors sold ₹1,680 crore ($200 million) of so-called Fully Accessible Route (FAR) bonds last week, said Bloomberg quoting Clearing Corporation of India data.

Market experts say foreign investors have been building up positions in FAR bonds since last year in anticipation of the index inclusion. Last week’s outflows came in the backdrop of rise in US yields and hardening crude oil prices.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, observed that the weekly outflow is moderate as compared to the robust inflows that have happened so far since select G-Secs were included in the JPMorgan bond index.

He emphasised that global investors/ funds will continue to invest as per the weight assigned to G-Secs in the GBI-EM index. So, inflows into G-Secs under the Fully Accessible Route (FAR) will continue apace.

The JPMorgan index inclusion is expected to attract at least $25 billion of foreign investment in Indian bonds in a phased manner from June 28, 2024 till March-end 2025.

In March 2024, Bloomberg said that it will India Fully Accessible Route (FAR) bonds in the Bloomberg Emerging Market (EM) Local Currency Government Index and related indices, to be phased in over a ten-month period, starting January 31, 2025.

Last week, FTSE Russell said it has added India to the FTSE Emerging Markets Government Bond Index (EMGBI), with inclusion starting in September 2025.

The Reserve Bank, in consultation with the Government of India, had in 2020 introduced a separate channel, called the ‘Fully Accessible Route’ (FAR), to enable non-residents to invest in specified G-Secs. Eligible investors can invest in specified Government securities without being subject to any investment ceilings.