NEW DELHI: A stable currency, low volatility in bond yields, and a relatively high risk-adjusted return have prompted many global central banks to increase their investments in India’s debt markets in the past three years.
According to data compiled by ETIG, of the total FII investment in India’s debt markets, the share of global central banks has increased to 15% in January 2015 from 2% three years ago.
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FIIs hold nearly $60 billion (Rs 3,12,000 crore) in Indian debt market, with half the money flow coming in 2014. Interestingly, foreign central banks hold 1.81% share in the total outstanding FII investment in Indian equities.
A key reason for increased investment by global central banks in Indian debts is the near zero yield in developed markets.
Besides higher yields, developing markets like India are also offering higher risk-adjusted return.
According to banking circles, monetary authorities of Norway, Singapore, Malaysia, and Middle-East are among the most prominent ones investing in Indian debt. These central banks have to register with capital market regulator Sebi as foreign portfolio investors (FPI) in order to invest in Indian debt securities. For instance, Norway’s central bank is registered as Norges Bank in the FPI category, according to the Sebi website.
According to a study by Official Monetary and Financial Institution Forum (OMFIF), an independent research and advisory group based in London, in recent years, central banks around the world have foregone between $200 billion and $250 billion in interest income as a result of the fall in bond yields in developed markets. This is causing them to look at other relatively ‘safer’ avenues with more risk- adjusted returns.
