– Foreign investor interest in Indian government bonds is experiencing a revival, with inflows picking up steadily over the last month. This surge in demand is largely driven by fresh expectations of a potential rate cut by the Reserve Bank of India (RBI), with some analysts predicting a modest 25 basis point cut as early as August.
– The RBI made a surprise 50 basis point rate cut in June, shifting its stance to “neutral.” However, a significant drop in retail inflation in June is leading investors to reassess the likelihood of further cuts. If inflation remains subdued and growth concerns continue, the RBI could cut rates further to support the economy.
– Key Developments:
+ 129 billion rupees ($1.5 billion) of Indian bonds have been net bought by foreign investors in the last month.
+ Investors remain optimistic about India’s economic fundamentals, which are seen as solid.
+ Bond yields in India are currently attractive, with a gap between Indian and U.S. interest rates adding to the appeal of Indian debt.
+ The Federal Reserve’s expected rate cut in 2025 could further bolster demand for Indian bonds as historical trends indicate that such cuts typically benefit local currency debt markets.
– Analyst Views:
+ Manish Bhargava, CEO of Straits Investment Management, suggests that a rate cut by the RBI in August is likely if inflation stays low and growth concerns persist.
+ Giulia Pellegrini, Lead Portfolio Manager at AllianzGI, points out that the central bank may continue providing support if growth slows further.
+ Jean-Charles Sambor, Head of Emerging Markets Debt at TT International Asset Management, remains optimistic about India’s local debt story, predicting further yield declines in the coming months.
As India’s economic outlook stays robust, foreign investors are returning to Indian debt, driven by attractive yields and a potentially supportive central bank.
