By Dharamraj Dhutia
MUMBAI- Foreign investors see India’s decision to return to curbs on purchases of some government securities as a flip-flop in policy that may force them to redraw investment strategies, global fund managers said on Tuesday.
Such limits were dropped in 2020 from key liquid government bonds to enable India’s entry into global bond indices, but late on Monday, the central bank said new 14-year and 30-year government bonds would be kept out of what is known as the fully accessible route, or FAR.
The decision had been made in consultation with the government, the Reserve Bank of India added, but gave no reason.
“These sort of moves push away foreign investors from emerging markets that have a pattern of going back and forth in terms of regulations, which is one of the biggest turn-offs,” a foreign fund manager based in Singapore said on condition of anonymity, as he is not authorized to speak to media.
Last week, a top government official told Reuters that India could choose to re-impose foreign investment limits on some government securities, if inclusion in JPMorgan’s emerging market debt index led to a deluge of inflows.
The central bank and finance ministry did not immediately respond to emails seeking comment.
Ten securities of maturities longer than 10 years that are a part of FAR are included in the JPMorgan index, with an aggregate holding of more than 406 billion rupees ($4.85 billion), or a fifth of overall ownership of FAR bonds.
The combined weightage of these papers in the index is set to rise to 3.87 percent by March 2025, or nearly two-fifths of the overall weight for Indian bonds.
The FAR exclusion comes just over a month after India’s debt was included in JPMorgan’s emerging market debt index, while Bloomberg Index Services is set to include the country’s bonds in its EM local currency index from January 2025.
JPMorgan declined to comment on the matter.
“The RBI’s decision introduces uncertainty into the Indian bond market and is likely to prompt a reassessment of investment strategies by foreign investors,” said Manish Bhargava, a fund manager at Straits Investment Management.
