Is There Opportunity in Indian Bonds?

by
Harjot Gill

India in the past has often been viewed as just another emerging market with burgeoning potential, but with the inherent risk associated with an advancing economy leaving it on the fringes of portfolio allocation consideration. However, with the sustained power of the Modi regime and notable economic reform, it is now considered an alternative to Russia and China in the sovereign debt market with a total size of circa US$1.3 trillion, by fixed income investors.

As more Indian fixed income instruments begin to be incorporated into international indices, overseas investors have begun to rapidly purchase Indian sovereign debt, with investment increasing by US$10 billion since the end of the third quarter 2023, following two straight years outflows according to Indian government statistics. Throughout 2024, Indian government debt has offered a return of 4.5%, coming in second behind Argentina amongst emerging market bonds. Many factors point to increased investor optimism regarding India, namely with its robust economic expansion, improving demographics and central bank vigilance contributing to its appeal as an effective diversifier amongst investor portfolios. This is highlighted by Indian bonds inclusion within JP Morgan’s Government Bond Index-Emerging Markets Global Index on the 28th of June 2024. Furthermore, India’s has managed to temper inflation rates, with inflation dropping by 35 bps as of May 2024, which bodes well for real returns from government bonds.

There has been a marked increase throughout the last 18 months of foreign fund managers using derivative swaps to access local Indian government debt, as this gives a vehicle for investment without local investing regulations. For non-US retail investors there are also ETF [r2] vehicles for investment including iShares India INR Govt Bond UCITS ETF (INGB), which launched in February 2024, yielding a 3 month return on 1.31%.

In conclusion, with India’s growing significance in the global economy due to its robust economic reform, fiscally responsible central bank and difficulties faced by its competitors geopolitical concerns, investment in Indian government bonds provides a real opportunity to earn favourable yield with the current 10 year treasury bond offering circa 7% yield.


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The information provided is for educational purposes only. The views expressed here are those of the author and may not represent the views of Leo Wealth. Neither Leo Wealth nor the author makes any warranty or representation as to this information’s accuracy, completeness, or reliability. Please be advised that this content may contain errors, is subject to revision at all times, and should not be relied upon for any purpose. Under no circumstances shall Leo Wealth be liable to you or anyone else for damage stemming from the use or misuse of this information. Neither Leo Wealth nor the author offers legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results. This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks, including changes in credit quality, liquidity, prepayments, and other factors. REIT risks include changes in real estate values and property taxes, interest rates, cash flow of underlying real estate assets, supply and demand, and the management skill and creditworthiness of the issuer.

Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices does not account for any fees, commissions or other expenses that would be incurred.  Returns do not include reinvested dividends.

The JPMorgan Government Bond Index-Emerging Markets (GBI-EM) indices are comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments. The index was launched in June 2005 and is the first comprehensive global local Emerging Markets index.Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus.

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