Foreign Investors Sell Record $2 Billion of Indian Bonds in April

Foreign investors sold a record amount of Indian bonds, see, outflows in April 2024, the highest since the Covid-19 pandemic. They sold nearly $2 billion of Indian sovereign and corporate bonds in April, a pace unmatched since May 2020. This marks the first month of net sales since March last year.

Why this matters: The sell-off of Indian bonds has significant implications for the country's economy, as it can impact the availability of foreign capital and influence interest rates. This, in turn, can affect the overall economic growth and stability of India, which is a major player in the global economy.

The sell-off was prompted by concerns over higher-for-longer Federal Reserve interest rates, which led traders to dial down their enthusiasm over the inclusion of Indian debt in global indexes. India's benchmark 10-year yield surged to 7.25% in April, the highest this year, as strong US data prompted traders to price in fewer Fed rate cuts in 2024.

Index tracking flows are set to kick in from June, but many active investors had placed their bets ahead of time, which helped India's benchmark 10-year yield drop to the lowest in nine months in March. However, the ongoing elections in India are giving investors another reason to stay on the sidelines.

"Until there is clarity on Fed policy, we will trade in this range," said Debendra Dash, a trader at AU Small Finance Bank Ltd. "Nobody would want to take the event risk and people would rather wait."

India's economy drew more than $12 billion of debt inflows since JPMorgan Chase Co announced it would add the nation's sovereign bonds to its flagship EM gauge in September. However, the recent sell-off has reversed some of these gains.

The record outflow of foreign investment from Indian bonds in April 2024 underscores the impact of global economic factors and domestic uncertainties on investor sentiment. As India navigates the challenges posed by higher US interest rates and its own general elections, the bond market is likely to remain cautious in the near term.

Key Takeaways

• Foreign investors sold a record $2 billion of Indian bonds in April 2024.
• This marks the first month of net sales since March 2023.
• Higher US interest rates and Indian elections sparked the sell-off.
• India's 10-year yield surged to 7.25%, the highest this year.
• Bond market to remain cautious due to global and domestic uncertainties.