Franklin Templeton last week bought government bonds worth more than Rs 1,000 crore in the highest single-day bulk purchase by an overseas institutional investor this calendar year when the rest of the market was weighing North Block's fiscal compulsions, said people aware of the matter.
The purchase reinforces the belief that global investors chasing returns will pile into high-yield debt assets in emerging markets.
Franklin Templeton is likely to have invested in debt securities largely of four-year maturity, said one of the persons cited above. JPMorgan Chase was said to be the broker that bought government bonds on behalf of Franklin Templeton. Both Franklin Templeton and JPMorgan declined to comment on the matter.
Earlier this week, the government trimmed its amended borrowing goals for FY18, reversing the recent surge in yields.
At the beginning of the new year, overseas investors normally start investing with fresh allocations for emerging markets offering high yields.
The carry, or gap, between the domestic benchmark bond yield and US Treasuries is nearly 500 basis points, which is a key attraction for yield-hungry global investors. A basis point is 0.01 percentage point.
A stable currency also helps save hedging costs as investors tend not to cover their overseas investments.
While the rupee may have turned volatile at the beginning of the year, investors are optimistic about a stable currency market.
In the past week, the bond market was volatile, with wild swings amid uncertainties stemming from the central bank's commentary on mark-to-market losses in debt securities, and government borrowing plans.
Last year, foreign portfolio investors (FPIs) invested about Rs 1.49 lakh crore in domestic debt securities, the most since 2014. Beginning this year, they have made purchases worth a net Rs 1,660 crore, according to National Securities Depository Ltd (NSDL) data.
On January 12, overseas investors purchased Rs 1,101 crore of debt securities from stock exchanges, according to official data. Templeton is said to have been the biggest buyer.
ET reported in July that the global money manager bought Indian government bonds aggregating Rs 9,000 crore in the second-highest bulk purchase by an overseas investor. That was in addition to the Rs 15,000-17,000 crore of sovereign bonds it had bought in March-April.
In August 2014, in the largest, single-day purchase of Indian government securities by a foreign fund, Franklin Templeton bought bonds worth about Rs 16,000 crore.