Global funds stepped up selling India’s sovereign bonds in October as the country’s inclusion into the JPMorgan emerging market bond index could be delayed by a year. They sold government bonds worth nearly ₹2,500 crore to end a seven consecutive months buying streak, data shows.

Compared to equity markets, India’s sovereign bond market has always been less of an attraction for the FPIs. But between April to September, FPIs embarked on a large buying spree of India’s sovereign bonds after it was reported that JP Morgan was looking to include India in its emerging markets bond index. This could have resulted in inflows to government bonds worth $30 billion to $40 billion in the next few years. FPIs had purchased Indian government bonds worth more than ₹5,000 crore in six months starting April.

However, JP Morgan recently said it was still evaluating India’s inclusion. Overall, the FPIs hold ₹1.25 lakh crore worth of government securities and paper. India has a $1 trillion sovereign debt market.

“A bulk of this was just speculative money that moved in and out sensing a quick opportunity. FPI buying into government bonds was based on anticipation of JPMorgan’s inclusion of India into its bond index, which since did not happen, led to natural unwinding. The current quantum of inflow and outflow does not make much of a difference for India. Bond market investments into the country will weigh the risk rewards associated with it, in terms of the growth rate, potential and the scale. Today, India is a $3-trillion economy and poised to become one of the biggest three economies in the world,” said Sachchidanand Shukla, Chief Economist, Mahindra&Mahindra.