Thursday, today, is a BIG day for the Indian bond markets.
30th Sept is the day when Global index provider FTSE Russell, which placed Indian bonds on the watchlist for possible inclusion in its debt index, is set to announce the result of its review.
And many say that inclusion is inevitable though it might happen only in early 2022. This, they say is the reason why FIIs are pouring money into India and will lure more in the coming months.
FIIs, till 24th of Sept have remained net buyers in the Indian stock market, with their net purchase for the month at Rs.7138 crore. They have invested over $9 billion in the Indian equities so far this year, more than double the net purchases of $3.4 billion in 9M of 2020.
Apart from reasons like increased vaccination, lowering of Covid cases, easing of most restrictions, resilient economy, upcoming festive season – this report of FTSE Russell on Thursday is also eagerly awaited.
Why so much importance to this bond inclusion? Well, its like stocks getting added to the MSCI Index – its like an automatic approval, a kind of quality check which sends the message across that its OK for FIIs to buy these bonds. Inclusion in this index thus gives the much-needed liquidity and depth of ownership to these bonds. Bonds indices are three - JMP GBI-EM Global Diversified Index, Bloomberg Global Aggregate Index and FTSE WGBI Index.
Other major advantages of inclusion:
Will bring stability to Indian rupee
Will make it easier to raise foreign funds for infrastructure projects
Will bring down pressure on banks to pick up major portion of the bonds
Builds confidence in the Indian markets – more psychological and an inclusion gives a sense of security.
Currently, as per data put out by the RBI, Commercial banks, insurance companies and RBI together own almost 80% of the Govt issued bonds. FIIs hold just 1.9%, which is peanuts given the size of our economy. Inclusion will thus mean that huge inflows will come, easing monetization pressure on the RBI and Govt.
As per a report put out by Morgan Stanley, India’s inclusion in the global bond indexes, may attract as much as $40 billion over two years and $250 billion of inflows in the next decade.
India’s inclusion in the Global Bond Index will indeed be a game changer for the country but let’s not get the victory band out yet – our wait could end only by next year; till then, anticipation will keep the spirits alive.