homemarket Newscurrency NewsUnion Budget paves way for inclusion of Indian bonds in global indices, here's what it means according to experts
Union Budget paves way for inclusion of Indian bonds in global indices, here's what it means according to experts
The Union Budget paved the way for including Government of India securities in global indices. It could mean lower interest rates for the common people, corporates and for government, according to experts. Since global indices are followed very widely, that would have an impact on yields, yields will probably come down, a currency impact, the currency will probably appreciate which would help to alleviate any inflation concerns and helping the case for further rate cuts from the RBI, according to Stretch .
The Union Budget paved the way for including Government of India securities in global indices. It could mean lower interest rates for the common people, corporates and for government, according to experts.
Jeremy Stretch, head, G10 FX at CIBC, told CNBC-TV18 on Wednesday if Indian bonds are included in phased manner into the indices then there could be significant money inflow in the region of $50-100 billion.
Since global indices are followed very widely, that would have an impact on yields, yields will probably come down, a currency impact, the currency will probably appreciate which would help to alleviate any inflation concerns and helping the case for further rate cuts from the RBI, according to Stretch .
"Yes there are question marks or uncertainties that would come with the inclusion, not least of which around the emerging markets flight risk when there are uncertainties but overall I think the balance of risk would certainly favour inclusion and that will be beneficial for the local market."
Ananth Narayan, professor at SPJIMR, said given that our household financial savings are coming down, India has no choice but to soak in overseas savings.
Second, India does have portfolio flows already allowed but into equities and into debt. As things stand today, India has outstanding assets under custody, under portfolio flows of $430 billion under equity and only $60 billion under debt, added Narayan.
"We have had 7 times more money coming into equity markets than into debt, I think that is lopsided."
He further added: "One of the reasons why equity has been favoured is because equity markets are part of MSCI indices and, therefore, India get in stable flows, long-term flows from long-term pension funds, etc.
"On the debt side, however, because of lack of index inclusion we have not been able to get this kind of stable flows."
"Anybody bringing in money is bringing money outside of the index. To that extent, trying to push for index inclusion is very welcome. This is the first we are seeing RBI and the government pushing through for this, I think it is very welcome."
Lakshmi Iyer of Kotak Mahindra AMC said in the last two years foreign investors have net sold Indian fixed income while they have net bought Indian equities.
Even this year, month to date they have net sold Indian fixed income despite the fact that they are not part of the bond index.
"So my sense is that volatility is here to stay irrespective of whether we are included or not. Look at the quantum, $900 billion outstanding, we are talking about certain specified bonds being offered, so let us attempt the marriage first because if you try to match every horoscope bit to bit, the marriage may just kind of fall off."
"So it is important to get into a wedlock with the global index first and then probably this is just wetting of the feet and then one can worry about vulnerabilities, we can obviously safeguard ourselves but it is important to take that move because we need that third demand lever which is right now absent for the domestic bond markets."
First Published: Feb 5, 2020 7:59 PM IST
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