Foreigners Lukewarm on India’s Plan to Open Up Bond Access

(Bloomberg) — India is looking to overseas funds to rescue its battered bond market, but relief may be slow to come.

A move to allow global funds to buy more government and corporate debt is unlikely to reverse sentiment hurt by record bond sales and shrinking returns, investors say.

“High bond supply means potential pressure on bond prices, so easier access to the local market does not mean a potential positive return in the near term,” said Arthur Lau, head of Asia ex-Japan fixed income at PineBridge Investments Asia Ltd.

Foreigners have turned cold on Indian debt in recent months, trimming holdings to a four-month low amid slowing growth and speculation that policy makers have limited scope to ease further after five rate cuts in 2019.

Rupee debt has climbed 1.5% since the start of the year, about half the gain posted by Indonesian notes, Asia’s other high-yielding bond market. The yield on 10-year bonds have declined 12 basis points this week, further diminishing the relative attractiveness of Indian debt.

Finance Minister Nirmala Sitharaman in her budget speech on Saturday said certain categories of sovereign bonds will be fully opened to non-resident investors. She also announced raising investment limits in corporate bonds to 15% from the current 9%.

While greater access could boost inflows over time, the benefits may take time to materialize and focus is likely to remain on the looming $109 billion bond supply for now.

“It may be argued that overall interest in Indian bonds is anyway muted for now and hence these expansions may amount to little in the near term,” said Suyash Choudhary, head of fixed income at IDFC Asset Management Co.

(Adds details on budget proposal in sixth paragraph)

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