By Dharamraj Dhutia
MUMBAI (Reuters) - Foreign banks bought Indian government bonds worth 80.38 billion rupees ($962.2 million) on Thursday, the biggest single-session purchase since Feb. 1, data from Clearing Corp of India showed.
These banks stepped up purchases after a softer-than-expected U.S. inflation print ramped up rate cut bets, with India's inclusion in JPMorgan's emerging market debt index also a factor, traders said.
Other recent economic data has also pointed to cooling inflation in the U.S., bolstering rate cut expectations "that have driven the top four or five large foreign banks to add bonds," a trader with a foreign bank said.
He requested anonymity as he is not authorised to speak to the media. Reuters could not ascertain which banks had bought bonds on Thursday.
Traders said that the bulk of the buying took place in the 10-year and above maturity bonds, including the 10-year benchmark 7.10% 2034 and liquid 7.23% 2039 bond, along with others. The 2039 bond is so far not part of the group that will be included in the index.
The buying activity follows a recent pick-up in government bond purchases by foreign investors in longer-duration securities.
Brokerage DBS maintains its view that the Federal Reserve will cut rates by 50 basis points in 2024, with the futures markets also pricing in 50 bps of reductions before December-end.
Locally, underlying sentiment continues to remain bullish as India is just weeks away index inclusion, starting June 28.
Investors are eyeing around $20 billion-$25 billion of passive inflows after the inclusion of the bonds.
India seems like a better bet compared to most other emerging markets, with the falling federal government fiscal deficit seen as a positive, said Adarsh Sinha, co-head, Asia FX & rates strategy at Bank of America.
Sinha expects some outflows from Malaysia and Thailand, which are susceptible to lower weightage in the JPMorgan index, while inflows into India are expected to pick up further.