After JP Morgan, Indian bonds set to enter other global bond indices; capital raising for infra push to get a boost
- Indian government bonds could enter other global indices like the Bloomberg Global Aggregate Index and FTSE, attracting capital flows of another $27 bn.
- Yields on
India’s 10-year bond to decline below 7% levels once the inclusion begins from next year. Since the bonds that will be included in these indices will be rupeedenominated, the currency risks are minimal for foreign investors.
- India could notify additional bond series for long-term debt capital to fund
infrastructureand development needs.
The inclusion of select Indian
Over time, India’s government securities could also enter the global aggregate series, JADE series and JSEG GBI-EM index series of JP Morgan indices. Over the next one year, foreign investors are expected to invest $40-50 bn in government securities issued by the Government of India.
The inclusion of
This is material so far foreign investors have not been very bullish on Indian bonds also because emerging market bonds carry currency and other macroeconomic risks on them because of the current account deficit that many such countries run.
The currency risk that these bonds carry is a big deterrent for global investors. Since the bonds that will be included in these indices will be rupee denominated, the currency risks are minimal for foreign investors. Axis Mutual Fund’s debt experts say: “The
The development will also have a positive impact on bond yields in the medium term. While the US Treasury yields have peaked and investors can now park their money in these risk-free securities at 4.5% in recent times, bond market experts expect Fixed income strategists expect India’s 10-year government bond to settle below 7% levels after the inclusion behind. In fact, Indian bonds and yields rallied 6-7 basis points after the announcement came in the morning and then retraced some of the gains.
Ten years ago India too faced a balance of payments crisis almost when the taper tantrum began and the US Federal Reserve decided to cut back on its bond buying programme, which would have resulted in liquidity drying up from financial markets. At the time, India became a member of the Fragile Five economies. With this inclusion, India has claimed its spot amidst bonds issued by other countries.
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