Will India Join Global Bond Indices? ‘Very Good Chance’, Says Morgan Stanley


Mid-to-late September is likely to be the time for India’s inclusion, according to Morgan Stanley.

Also, taking into consideration the time it takes to set up FPI accounts, the lead time in India’s case could be 9-12 months, which means that the actual inclusion could start in June or September 2023.

Currently, there are 20 bonds in the fully accessible route list and they will be eligible for the actual inclusion. Total outstanding is $263 billion. “We assume that the monthly increase of FAR list bonds is $10 billion in the next 12 months. This would suggest that the eligible bonds would be about $360 billion in the second half of 2023, making it the second-biggest bond market after China in the index. As a result, India would join the 10% club with China and Indonesia.”

The other current 10% countries such as Thailand, Malaysia, Brazil, Mexico and South Africa would see their weight drop. The biggest decrease would happen in Thailand (-1.4%), Poland (- 1.4%), South Africa (-1.3%), the Czech Republic (-1.0%) and Brazil (-0.8%), Morgan Stanley said.

The assets under management tracking the JPMorgan Government Bond Index-Emerging Markets is about $300 billion. “Hence, 10% in India will attract $30 billion of inflows versus current foreign ownership of $17.8 billion.”

Monthly inflows of $3 billion, according to Morgan Stanley, would start in the fourth quarter of 2023, spanning over 10 months until the second quarter of 2024.

The research house also said that though the inclusion announcement doesn’t trigger inflows yet, it could improve sentiment. “We recommend to position for a strong rupee and lower government securities yields tactically. We like to add a short euro/rupee limit order and long 10-year government securities, targeting 25 basis points lower from here.”

“The bond yield has been moving lower on the back of a hawkish RBI and stabilised inflation. We expect yields to be lower should the announcement happen as investors have not positioned for that.”


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