DBS Expect Continued Passive Absorption Of Bond-Related FX Flows

DBS note that “foreign portfolio investments into India's debt rose to a six-year high in 2023 at $7.1bn, led by the GSec FAR window, as investors frontloaded purchases ahead of the inclusion into the global bond indices.”

• “These inclusions stand to improve the demand-supply dynamics for the sovereign bonds by tapping a significant under-realised investor group, as well as helping to balance fiscal discipline with the need to boost infrastructure capabilities and supporting the overall balance of payments math.”
• “Anticipation of further portfolio flows is likely to convince the authorities to continue absorbing flows passively to bolster defences and keep the rupee on a predictable as well as stable path.”