Ahead of Budget on February 1, Modi govt has a $100 bn reason to cheer

Global funds are lapping up India’s sovereign bonds ahead of its addition to global debt indexes, bolstering demand for the near-record government borrowing in coming fiscal year.

A Bloomberg report sees Delhi going for a gross borrowing of $183 billion for the year starting April 1, lower than 15.43 trillion rupees set for this fiscal. 

Global funds have plowed more than 500 billion rupees into index-eligible debt since JPMorgan Chase & Co’s September’s inclusion announcement. India's bonds may lure $100 billion of inflows in the coming years, according to HSBC Asset Management.

Foreigners own about 2% of India’s sovereign debt market.  JPMorgan will add Indian government bonds to its benchmark emerging-market index from June. Bloomberg Index Services has also sought investor feedback to add the debt to its EM bond index, effective September. 

“We expect foreign investor inflows of $20 billion to be a game-changer for FY25 demand dynamics,” Standard Chartered Plc. economists including Anubhuti Sahay wrote in a note. “While inflows are trickling in, we expect them to accelerate as actual inclusion starts in June.” 

A favorable demand-supply backdrop for government debt will come as a breather given the Reserve Bank of India’s stance to keep interest rates high. Finance minister Nirmala Sitharaman will present an interim budget on February 1 ahead of a general election due by May. 

Centre is likely to stay fiscally conservative, with Modi widely expected to win a third term. The fiscal deficit is seen narrowing to 5.4% from an estimated 5.9% in the current year, a Bloomberg survey showed.