Indian Offshore Rupee Bonds Attract Global Investors Amid Currency Stability

India’s offshore rupee bond market has seen a remarkable surge this year, with investor interest reaching new highs

India’s offshore rupee bond market has seen a remarkable surge this year, with investor interest reaching new highs. To date, investors have purchased more than Rs 42,000 crore (around $5 billion) in these rupee-denominated, dollar-settled bonds, nearly doubling last year’s figures and breaking a full-year record set in 2017. Major players like the World Bank and the Asian Development Bank have driven this growth, offering bonds capitalizing on India’s rising appeal among global investors. Analysts attribute this demand to the rupee’s unique positioning: the currency remains resilient amid dollar volatility and is uncorrelated mainly with other emerging-market currencies. According to Carl Vermassen of Vontobel Asset Management, the rupee’s stability against dollar fluctuations makes it a “unique EM asset.”

This year, multilateral agencies, including the European Bank for Reconstruction and Development, have increasingly turned to offshore rupee bonds for development financing and broader funding purposes. The popularity of these bonds has been further boosted by India’s recent inclusion in significant emerging market indexes by JPMorgan Chase & Co. and FTSE Russell, opening access to more global funds. Investors are also drawn to these bonds because they lack the withholding tax imposed on local Indian debt, a significant advantage. However, there are concerns: India’s economy is showing signs of slowing, and there is uncertainty regarding the timing of interest rate cuts. Despite these risks, some investors remain optimistic. Yifei Ding from Invesco Ltd. believes the market’s recent growth will likely continue, with increased bank participation to support market liquidity. Offshore rupee bonds have emerged as a valuable diversification tool, enhancing global portfolios with distinct advantages.