Foreign Funds Pile Into Indian Debt Even as They Dump Stocks #IndiaFinance

(Bloomberg) — Global funds are set to boost their holdings of Indian bonds in March by the most in six months on bets of further interest-rate cuts by the central bank, even as they exit local equities.

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Foreigners bought $1.8 billion of rupee bonds this month so far, already higher than any monthly total since September, according to data compiled by Bloomberg. In contrast, global funds have sold over $2.6 billion of stocks amid concerns over slowing economic growth and high valuations.

The prospects of the Reserve Bank of India cutting rates for the second time this year in April have boosted the appeal of fixed-income notes. India’s improving yield advantage over US Treasuries and government bonds getting entry into major global indexes are also luring foreign buyers.

“Indian bonds have positive real yield and carry to US Treasuries and they remain somewhat attractive,” said Carol Lye, portfolio manager at Brandywine Global Investment Management. Bond yields may fall given India’s cyclical growth slowdown and RBI’s rate-cutting cycle, she said.

Slowing inflation prompted Morgan Stanley to raise its call for interest-rate cuts to 75 basis points for this year, from 50 basis points earlier. India’s inflation slowed more than expected in February, falling below the central bank’s mid-term aim of 4%.

Brandywine is long on India via supranational bonds, which are securities issued by multilateral agencies in local currencies. PineBridge Investments Asia Ltd. said it’s looking to buy more Indian bonds.

“We like the attractive carry in India’s local bonds but have been surprised by the softness in the rupee versus other EM currencies,” said Samsara Wang, Asian sovereign analyst at PineBridge.

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