ET NEWS

Mumbai: Purchases of Indian bonds by overseas investors surged for the second consecutive month in August, as yields on the benchmark instrument climbed the most in three years.Net inflows in the fully accessible route (FAR) on government securities jumped to ₹10,471 crore in August, from ₹2,466 crore in July, data on CCIL showed. This was led by a widening of the gap in yields offered by local sovereign bonds and US treasury papers."The pickup in FPI inflows into FAR securities is led by widening yield differential between government bonds and US treasuries," said Gaura Sengupta, chief economist at IDFC First Bank. "Another factor that supported sentiment is India's sovereign ratings upgrade. Moreover, compared to emerging markets such as Indonesia, India G-Sec yields are relatively higher."123623069There were outflows in the first quarter of the current fiscal year.Securities in the FAR category are eligible for inclusion in the global bond indices, and these papers are fully open for investment without restrictions.ATTRACTIVE ENTRY POINT The widening of yield spread between India and the US, combined with recent rupee depreciation has opened more attractive entry points for active foreign investors, bond dealers said. In August, yield on 10-year paper, the risk-free reference frame for pricing loans across the economy, rose about 19 bps. This is the highest monthly rise in yields since September 2022, Reuters reported on Friday. The spike in yields has been on account of the government's announcement to rejig the GST structure. This move, market experts believe, may hit revenues, leading to higher government borrowing. To be sure, the change of monetary policy stance to neutral in the June review has also kept the market under pressure as it lengthened the odds on a further rate cut. The 10-year yield closed 6.57% on August 29, last trading day of the month. With this, the gap between India and US bond yields surged to 234 basis points from about 200 at the start of August, a month where the rupee has closed 0.68% lower, its fourth monthly fall in a row. The recent shift in sentiment toward a weaker dollar also supports the case for increased EM debt allocations, attracting passive flows as well, said Abhishek Upadhyay, economist at ICICI Securities Primary Dealership. “That said, while a potential Fed rate cut in September is directionally positive for EM flows, much of it is already priced in. Markets aren’t expecting an aggressive easing cycle, but the dollar should still be expected to weaken and that is positive from a debt flows standpoint,” he said. “For Indian bonds, the bigger risk lies in domestic dynamics — particularly the demand-supply imbalance and concerns around potential fiscal slippage that could keep yields elevated, even as these worries may be a bit exaggerated.”

Mumbai: Indian equity investors may have little reason to cheer this month, as historical seasonality trends suggest September is typically subdued for markets. The Indian stock market hit peak levels last September before entering a phase of sharp swings.Data from Motilal Oswal Financial Services showed that the Nifty 50 and Nifty 500 indices have ended lower in six of the past 10 years, falling an average 0.38% and 0.33% in September, respectively.123623045"As per seasonality trends, the September series usually remains dull," said Chandan Taparia, head of technical and derivatives research at Motilal Oswal Financial Services.Taparia said the immediate structure of the indices is "slightly negative"."Till Nifty remains below 25,000 zones, upside could be capped with major support at 24,000 levels."US benchmarks also show a weak seasonal trend, with the S&P 500 and Dow Jones Industrial Average declining in six of the last 10 years, while the Nasdaq 100 has slipped in seven out of 10 instances.Taparia added that while the Dow Jones and S&P 500 are heading to fresh highs alongside gains in gold and silver, the rupee is at lifetime lows.