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Foreign investors stepped up their pace of Indian government bond purchases in August as the recent sell-off has provided attractive points of entry and on renewed expectations of the country's inclusion in a global bond index.

Foreign investors bought bonds worth 45.3 billion rupees ($545.5 million) on a net basis in August under the 'Fully Accessible Route' (FAR), the biggest such purchase since May.

"We think with the recent selloff, entry points are getting more attractive," said Jean-Charles Sambor, head of emerging markets, fixed income at BNP Paribas Asset Management.

Most of the buying was seen in bonds of the four-year to 10-year variety, with nearly half in the benchmark 7.26% 2033 note, Clearing Corp of India data showed.

The benchmark 10-year bond yield has risen by around 10 basis points (bps) in the last one month, while the five-year bond yield has risen by 8 bps in the same period.

"India is less crowded and a large and liquid market which cannot be ignored," Sambor added. He sees five-year to 15-year bonds as "interesting".

Total bond holding under FAR stood at 941 billion rupees as of end-August, up by 329 billion rupees for the year. This is a jump of 55% from end-2022 levels.

Even though there may not be any visible progress towards the inclusion of Indian bonds in global indices, a review from index provider JP Morgan is due by October and that is keeping investors active, traders have said.

While traders expect Indian bonds to remain an attractive bet for foreign investors, they "may not go heavily long unless there is any fresh trigger like material progress on the index inclusion front," said Ashutosh Tikekar, head of global markets - India at BNP Paribas