Until now, the eligible universe was largely restricted to government bonds with maturities of up to 10 years.
The move will allow foreign investors greater access to India’s long-dated sovereign debt market without investment limits, potentially broadening the investor base and improving demand for longer-tenor government bonds.Market participants said the measure could help attract additional foreign capital into India’s debt market at a time of heightened global uncertainty and pressure on emerging-market currencies.
ALSO READ | RBI removes FPI concentration limits in debt market, eases investment rulesDebopam Chaudhuri, Chief Economist at Piramal Group, said expanding foreign investor participation in longer-tenor government securities through the FAR route is a constructive step that could support foreign capital inflows and provide stability to the rupee.
He added that the measure could also help mitigate potential crowding-out effects on private corporate borrowers if government borrowing requirements rise amid the current geopolitical environment.
Anil Bamboli, Head–Fixed Income at HDFC Asset Management Company, said the move should make Indian government securities more attractive to foreign investors and help reduce pressure on the rupee. He noted that while foreign portfolio investor outflows have largely been concentrated in equities, India’s debt market witnessed marginal inflows in May.
The FAR expansion is one of several measures announced by the RBI to strengthen external buffers, alongside incentives for foreign currency deposits and overseas borrowings.
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