India opened up a wide swath of its sovereign bond market to overseas investors, taking its biggest step yet to secure access to global indexes as the government embarks on a record borrowing plan. Bonds rallied.
Global funds will be able to buy new 5-, 10- and 30-year bonds starting April 1, the Reserve Bank of India said in a statement Monday. It also removed caps on some issued debt including the benchmark. Tenors may be changed or added, it said.
The rule change comes as Prime Minister Narendra Modi faces his biggest challenge yet after locking down the country for three weeks to contain a worsening coronavirus outbreak. Already under pressure from a slowing economy, Mr. Modi's government needs inflows to fund a $22.6 billion stimulus package.
"It's certainly a right step moving forward to further open up the local market," said Arthur Lau, head of Asia excluding Japan fixed income at PineBridge Investments Asia. "Whether the breadth of the move is sufficient will depend on the frequency and magnitude of the issuance."
Foreigners hold just 2.7% of the 60 trillion rupees ($794 billion) of sovereign bonds issued by India, and the government had set a 6% limit on overseas ownership. They also own under 2% of the outstanding benchmark 10-year debt.
Gains were seen in the securities selected by the central bank for full foreign investments. The benchmark 6.45% bond due in 2029 was down 8 basis points to 6.13%, while the 7.32% note due in 2024 was down 6 basis points at 5.61%.
The greater access comes just as global funds are selling emerging-market assets to hoard dollars amid fears of a global recession. They've sold $9.1 billion of rupee-denominated debt this quarter, the most in Asia, and the outflows helped send the currency to a record low.
"It makes sense at a time when the government is trying to fund fiscal spending," said Frances Cheung, head of Asia macro strategy at Westpac Banking Corp. "Current offshore-onshore rate differentials don't suggest there is a lot of pent-up demand."
