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Foreigners Are Buying Indian Bonds Even as Locals Remain Wary

While there’s still skepticism that India’s state-run banks will get back into the nation’s sovereign bond market, overseas investors are keen to buy more of the notes after the central bank granted them greater access.

India’s high yields and relatively stable currency have spurred Mitsubishi UFJ Kokusai Asset Management to buy more rupee securities, said Tatsuya Higuchi, executive chief fund manager of the fixed-income investment division in Tokyo. Standard Chartered Plc is long on the nation’s 10-year paper due to “cheap valuations,” Arup Ghosh, senior Asia rates strategist, wrote in a note Tuesday.

“Inflation seems to be stabilizing, while foreign-direct investment flows have been coming in,” said Higuchi at MUFJ Kokusai, which oversaw the equivalent of $129 billion at the end of last year. “We hold them based on a long-term growth story.”

Overseas investors kept buying Indian debt even during most of a seven-month rout through February, although they’ve been restricted by a foreign investor cap of around 5 percent of outstanding notes. That will be lifted by half a percentage point in each of the next two fiscal years ending March, the Reserve Bank of India announced on Friday.

The yield on the benchmark 10-year bonds rose 12 basis points to 7.34 percent as of 10:39 a.m. in Mumbai after peaking at 7.82 percent in late February. That hasn’t been enough to lure back the state-run lenders, the biggest buyers, who were net sellers in four of the five days through Monday, according to data from the Clearing Corp. of India.

— With assistance by Kartik Goyal

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