BNP Paribas upbeat on India bonds on JPMorgan inclusion, sees $20 bn inflow

By Dharamraj Dhutia

The recent addition of Indian government bonds to JPMorgan’s emerging markets bond indices has prompted BNP Paribas Asset Management to become “more positive” on these securities, with domestic bond inflows expected to be around $20 billion over the next two years, said a fund official. on Thursday.

JPMorgan last week included Indian bonds in its emerging market bond index.

“We expect bonds to recover and yields on 10-year benchmark bonds to fall below 7% by the end of this year,” Jean-Charles Sambor, head of emerging markets fixed income at BNP Paribas Asset Management, told Reuters.

The 7.18% bond yield for 2033 was trading at 7.23% on Thursday, after hitting a two-month low of 7.07% last Friday in the immediate reaction to the inclusion news. Interest rates were last below 7% in June.

“The muted response currently is due to weak global risk appetite,” said Sambor, who said inflows could increase if India becomes part of other global indices.

“The very short end will not be of interest to global investors, and they would be looking at the 10-year horizon, which would be the sweet spot for now. If you look at bond absorption, the long end should be well supported” , said Sambor. .

Foreign holdings of the benchmark bond for 2033 almost tripled to 16.1 trillion rupees as of September 27, from 6.75 trillion rupees before the announcement of inclusion in the index, data from India’s Clearing Corp showed.

Market participants expect inflows to increase with more auctions of the note.

Sambor said that while the gap between Indian and US 10-year yields is narrowing, he expects inflows to continue.

“US yields are nearing their peak and we are very close to the end of the tightening cycle. Once we see that, capital flows will return to emerging markets, including India.” The US ten-year yield rose to 4.60% and the spread with the Indian counterpart is around 260 basis points.

Sambor said the inclusion of the bond index is also positive for the local currency as the inflows could lift the rupee to 82.00-82.25 per dollar in the next six months from near record levels currently.