The Zhitong Finance App learned that in recent weeks, attracted by India's economic prospects and stable currency, foreign banks have become the largest investors in India's trillion-dollar sovereign bond market. Foreign banks have purchased more than 500 billion rupees (about 6 billion US dollars) of Indian sovereign bonds since June 1, according to data from the Indian Clearing House. This amount far exceeds the net inflow of index bonds of about 200 billion rupees during the same period, indicating that global banks that usually buy bonds as customer custodians are also snapping up these bonds for their own accounts, including Deutsche Bank and HSBC Holdings.

In June, J.P. Morgan Chase included India in the Emerging Markets Bond Index. Furthermore, the election results, which strengthened political continuity, also boosted the inflow of funds. Nitin Agarwal, head of Indian transactions at ANZ Bank, said: “The bank may have reduced its positions before the general election. After the election results came out, they made up for their short positions, and then began to go long. India's macro fundamentals also remain strong.”

Nitin Agarwal said that the rise in demand for foreign banks is also due to a popular derivative transaction between banks and insurance companies — bond-forward rate agreements (bond-forward rate agreements). This strategy helps insurers lock in long-term returns without having to take on more debt on their balance sheets. Banks, on the other hand, hold these bonds until maturity and collect security deposits.

Data from Bank for Settlement of India shows that throughout June, foreign banks spent all but 4 of these days making net purchases of Indian bonds. Foreign banks bought 31 billion rubles of bonds on Monday, the sixth consecutive day of net purchases. Meanwhile, India's state-owned banks, mutual funds, and private banks are net sellers of Indian bonds.

Parul Mittal Sinha, head of India's financial market at Standard Chartered Bank, said that India's inflation rate is on a downward trend. The average inflation rate for the fiscal year ending March next year is expected to be 4.5%, which makes it possible to cut interest rates. He said, “When global yields begin to fall, if the Bank of India also starts cutting interest rates, the intensity of capital inflows may increase.” “Capital gains are just around the corner and we are very optimistic.”