No immediate ‘hot money’ worries over bond inclusion given low FPI presence
In June, Indian bonds will get included in JPMorgan’s global index. Even before the inclusion, worries have crept in over volatility in the bond market due to the whimsical nature of foreign portfolio investment (FPI) flows. But, according to a senior finance ministry official, concerns over “hot money” are not immediate given that the amount invested by foreign investors under the fully accessible route so far is not too large.
As per Clearing Corporation of India (CCI) data, investments under the FAR route stood at Rs 1.63 lakh crore as on May 20. FAR or Fully Accessible Route was introduced by the Reserve Bank of India in April 2020, allowing non-residents to invest in specified government bonds without any restrictions.
“The bond market is not a market where you can dump and go. You typically have long-term investors in this market. Though the FAR route has no limits when it comes to FPIs, total investments by foreign investors has not even reached 6 percent, which is the ceiling for government securities overall,” this official said.
The official is referring to the investment limit on FPIs in government securities overall of 6 percent sans the FAR route .