Indian bonds are anticipated to be integrated in a couple of worldwide bond indices by next year. Even as Indian bond markets have been open to foreign investors, the inflows are significantly less than $40 billion in the last decade. However, inflows of about $170 billion to $250 billion are anticipated more than the next 10 years, according to Morgan Stanley.
Experts think that the inclusion of Indian bonds in the worldwide bond indices would be substantial for the nation. However, this will not influence retail investors a lot.
Global indices contain the emerging markets in debt, which monitor regional currency bonds issued by governments of creating nations. India has been present in most benchmark equity indices but absent in the bond indices marketplace.
“With India being included in the global indices, debt capital will flow into Indian markets. Presently, foreign ownership of Indian sovereign debt is very low; this number would increase and lower the cost of borrowing for government and private entities over time. This means the ability to raise capital at a cheaper rate,” Ajinkya Kulkarni, Co-founder of Wint Wealth, told FE Online.
ALSO Study | Bonding with foreign investors
At present, foreign ownership of Indian government debt is significantly less than 2%. However, it is estimated the figure will move up to 9% more than the next decade.
India’s inclusion in worldwide indices would imply more bond investment inflow in the coming years.
“More foreign capital flowing into the country can lower yields and, therefore, the cost of borrowing for the government and Indian companies. This will help stabilise the exchange rate of the rupee and improve the balance of payments for the country. This reduction would also trickle down to private entities over the long term,” mentioned Kulkarni.
“Approximately $40 billion would be infused immediately into the Indian debt market after the inclusion of the bonds indices market,” he added.
Why India has not been a aspect of worldwide bond indices till now?
India has not been a aspect of the worldwide indices due to the fact of the ongoing troubles with capital controls, custody and settlement and other operational issues. In an index overview dated 18 Sept 2020, J.P. Morgan mentioned, “Apart from the capital controls, custody/settlement, legacy trading and operational requirements have been cited by benchmarked investors as hurdles for accessing the onshore bonds.”
Impact on retail investors
“When government bonds are included in the global indices, they come into the buy list of foreign portfolio investors. The presence of diverse pools of capital in Indian debt markets would increase secondary liquidity in the debt market,” mentioned Kulkarni.
“Retail investors would not be affected as much, this is more towards institutional investors,” he added.