HSBC Asset Management predicts that Indian bonds will experience a significant influx of approximately $100 billion in foreign investments in the coming years, driven by their inclusion in global bond indexes. While the inclusion is expected to trigger around $50 billion in inflows, a similar amount is anticipated from large institutional investors, sovereign wealth funds, and pension funds, according to Shriram Ramanathan, Chief Investment Officer of Fixed Income at HSBC Asset Management’s India unit.
India has emerged as a favored market for Wall Street investors, attracting attention due to its rapid economic growth and its positioning as an alternative to China. With foreigners currently holding only 2% of government bonds, there is substantial room for global funds to increase their holdings.
Ramanathan emphasized India’s attractiveness for strategic allocations by large institutional investors, citing the country’s economic performance over the last five and ten years. The combination of credible monetary and fiscal policies has contributed to building confidence in India’s economic outlook.
As India gears up for inclusion in JPMorgan Chase & Co.’s emerging markets bond index in June, its trillion-dollar sovereign bond market is expected to witness a surge in foreign investments. Bloomberg Index Services Ltd. is seeking feedback on the proposed inclusion of India’s Fully Accessible Route (FAR) bonds in its emerging market local currency index. FAR bonds have no investment restrictions for foreigners.
With foreigners owning just 2% of government bonds, India’s low correlation with global markets and other developing nations positions it as a stand-alone investment destination, similar to China, Ramanathan noted. The 7.17% yield on India’s 10-year bonds is the highest in emerging Asia, making local yields attractive and offering a favorable diversification opportunity amid global economic stability.
