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Foreign investors were net buyers of $3.2 billion of Indian equities so far this month, headed for the highest since March.
Foreign investors were net buyers of $3.2 billion of Indian equities so far this month, headed for the highest since March.

Worst-performing rupee prompts global funds to dump India bonds

  • The rupee is the worst performer among emerging market peers in Asia this half
  • However, the stock market shows different picture as investors expect to profit more from recent corporate tax cuts

Mumbai: India needs all the help it can get as it tries to develop its small corporate bond market to overcome a cash crunch that’s hobbled economic growth.

Weakness in the rupee, though, is making that harder. Foreign investors spooked by the currency’s slide sold 7,500 crore ($1.05 billion) of local notes more than they bought this month, the most since April, dragging their holdings down to a 2.5-year low of 1.9 trillion.

Cash-strapped businesses struggling to get financing amid a shadow banking crisis would no doubt like to see foreigners taking out their checkbooks more -- overseas investors make up only a small proportion of overall local corporate bond holdings. But rising defaults, a slowing economy and a sovereign outlook downgrade by Moody’s Investors Service have given global funds further pause.

The rupee is the worst performer among emerging market peers in Asia this half. That’s crimped flows from offshore into corporate bonds.

It’s a different picture for the nation’s stock market as investors expect to profit more from recent corporate tax cuts. Foreign investors were net buyers of $3.2 billion of Indian equities so far this month, headed for the highest since March. Prime Minister Narendra Modi’s steps to revive economic growth aren’t assuring many corporate debt investors. Data scheduled Friday is likely to show gross domestic product expanded less than 5%, according to forecasts.

Moody’s and S&P Global Ratings have flagged risks that the troubled shadow lending sector will worsen a prolonged credit squeeze.

Still, some yield-starved international fund managers are bargain hunting for Indian corporate debt -- it’s just that they’re going for dollar bonds, which preclude the need for currency hedges. That’s helped issuance of foreign-currency securities by Indian borrowers reach a record in 2019.

This story has been published from a wire agency feed without modifications to the text.

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