InvestorQ : I read that a lot of bonds in Europe are giving negative returns. Is that also a reason why FPIs like Indian equities?
Abhisha Yadav made post

I read that a lot of bonds in Europe are giving negative returns. Is that also a reason why FPIs like Indian equities?

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Mahil Khan answered.
2 years ago
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You are right in the sense that after the central banks started cutting rates post the financial crisis of 2008 most bond yields in developed markets have either gone to zero or event into negative territory. Central banks like the European Central Bank (ECB) and the Bank of Japan (BOJ) have cut rates to the extent that their government bonds are yielding negative returns. It is estimated that there are government bonds worth $12 trillion in the world that carry negative yields. Buying negative yield bonds is like paying someone to keep your money. FPIs obviously are hired to provide alpha (excess returns) to investors and that is not possible unless they move into emerging market equities. India with its relatively strong macros, GDP growth in excess of 7%, controlled inflation and reasonable CAD and GFD is a perfect market to buy equities. This search for alpha has forced many fund managers worldwide to move their investment strategy from risk-off to risk-on. In fact, most FPIs find that even though there is a higher risk in countries like India, the higher returns more than compensate for the same. That is why, FPIs are willing to invest in India despite the higher risks because the returns are very attractive in the longer term.

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