Before the nation gets added to international debt indices, foreign funds are snatching up India's sovereign bonds, and dealers anticipate that they will be a major source of demand for the nearly unprecedented government borrowing in the upcoming fiscal year. According to a Bloomberg poll of 21 analysts, New Delhi is expected to declare a gross borrowing of Rs 15.2 trillion ($183 billion) for the year beginning April 1. This is somewhat less than the record Rs 15.43 trillion set for the current year.
After JPMorgan Chase & Co.'s September inclusion announcement, foreign investors have invested more than Rs 50,000 crore in debt that qualifies for the index. According to HSBC Asset Management, the country's bonds may attract $100 billion in inflows over the next several years as one of the quickest rates of economic growth in the world draws in investors.
"We anticipate $20 billion in foreign investor inflows to be a game-changer for FY25 demand dynamics," Anubhuti Sahay and other Standard Chartered Plc. economists wrote in a note. "Although inflows are slowly increasing, we anticipate a sharp increase once real inclusion begins in June."
The experts predicted that overseas demand would account for 8–9% of the net supply, or roughly twice as much as it did in the first half of the fiscal year. Just 2% of India's market for government debt is owned by foreigners, meaning there is still room for new investors.
Beginning in June, JPMorgan will include Indian government bonds in its benchmark emerging-market index. In order to include the debt in its EM bond index starting in September, Bloomberg Index Services Ltd. has also asked for input from investors. The parent business of Bloomberg Index Services, which manages indexes in competition with other suppliers, is Bloomberg LP.
RBI Position
A supportive demand-supply environment for government debt will be welcome given the Reserve Bank of India's intention to maintain high interest rates. The majority of experts predict that the monetary authority won't start cutting rates until later in the year, once inflation has reached its objective of 4%.
In advance of the general election that is scheduled for May, the administration of Prime Minister Narendra Modi will unveil an interim budget on February 1. The administration is predicted by economists to maintain its fiscal conservatism, and Modi is favored to win a third term. According to the Bloomberg survey, the fiscal deficit is expected to decrease to 5.4% from an estimated 5.9% in the current year.
