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RBI Brings India Closer to Global Bond Index

Yesterday via a circular RBI has notified Fully Accessible Route(FAR) for G-Sec participation by FPI. This is inline with the Budget announcement that the government made to open specific securities with no restriction of amount held by them.

Currently FPIs are allowed to hold Rs.3,56,700cr of Central Government Securities (General+Long Term). As on date they hold securities worth Rs. 1,61,861cr that is 45.4% of total available limit. This has seen a outflow trend in recent days as the risk of EM securities have increased.

But we believe this is a big step that the RBI has taken up to open a new source of funding for the government. As this rule change will increase the prospect of G-Sec to be involved in Global Bond index.

Currently RBI has identified five outstanding G-Sec for these rule changes along with any security issued of 5 yr , 10yr & 30yr in FY 2020-21. The total outstanding of these five securities is currently Rs.4,34,225cr that is 7.2% of total G-Sec outstanding.

Below are the limit of FPI in G-Sec for FY 2020-21 & the five G-Sec that have been selected :

This step brings India closer to acceptance for an allocation in Global Bond Index that will bring an almost an automated flow to the debt market via FPIs and help in sustainable current account management. Currently India has a lowest investment grade and with that rating it will not get listed in FTSE World Government Bond Index. The possible indices are JPMorgan Emerging Market Bond Index & Bloomberg Barclays Index with total assets of $2.75 Trillion.

10yr bond yield has reacted positively to the announcement