India's Entry Into The Bond Market: ‘When' Not ‘If'

The global bond market is seen as a viable option for companies globally to attract foreign investment in their country. As the case should be, India does not want to be left behind when it comes to attracting global funds. 

The talks are going on between the central government and index holders, and there is a strong push to include India in the global investment market. When listed, the Indian bonds are expected to be included in the JP Morgan Government Bond Index-Emerging Markets in 2023. 

At a time when many economies are looking inwards, and the Indian government is touting 'Atmanirbhar Bharat' and 'Make In India', why should Indian companies care about global listing?

What is global bond index?

In simple terms, the index is a way to track the movement of a financial instrument on which it is based. These indices help investors track the movement of bonds in multiple jurisdictions and aid in relative comparisons. They help benchmark investments by mutual funds, pension funds and other large investors that prefer to hold investments over a long period of time. For example, Sensex and Nifty help track particular shares in India. 

The Nifty 100 keeps track of the top 100 companies listed in the National Stock Exchange. When the market goes up, the value of individual shares goes up, and vice versa. Similarly, we have a global index, where the listing is of bonds and not shares. They track bonds in subcategories, like high-yield risky bonds, emerging market bonds, and government bonds. JP Morgan and Bloomberg Barclay are some of the major indices in debt markets that provide a wide range of indices from emerging markets to country-specific world indices.

Why should India get listed?

The government is in a position where it is spending more than what it earns. As per some estimates, it is 16 to 17 lakh crores more this year. This money usually comes from the bond market, where the government sells bonds and collects money (The government bond is also known as a sovereign bond). 

Once Indian bonds get listed the RBI would not have to become a buyer of last resort for the government, to reduce the government’s borrowing cost. It is interesting to note that we have one of the strongest bond markets in the world, standing at a whopping 1trillion USD. The problem is, it is not listed under any global index. 

In a nutshell, by listing ourselves globally, Indian bonds will remain in the line of sight of investors who are willing to put in money abroad. This will help bring more forex into the country, which will have a positive impact on the dwindling Rupee which is at an all-time low of INR 82 per USD. It will ensure some amount of Dollars is flowing in regularly from passively managed funds. The listing will help Indian bonds become more competitive globally when pitted against top-performing global bonds. Also, given the dwindling Rupee, investors are withdrawing from the Indian market. The global market can serve as a financial buffer around the same. 

However, this is easier said than done. There are strict criteria around liquidity (can we sell easily in the secondary market) safety (includes government and economic stability), and returns (profit generated). This also includes market size (Indi for example has one of the largest bond markets globally), ease of bond access, and sovereign rating, among other parameters.  India performs well in all these parameters, which makes India a hot market for investors. 

The RBI, for example, came out with Fully Accessible Route (FAR) in 2020, under which foreign investors can invest in India without any caps pr restrictions. Lastly, Russia has been ousted from the global bond index, this makes space for India to emerge as a viable competitor in the global bond market. If one is looking to invest in the Indian bond market, the time has come.