Will overseas investors pump in $7 billion in bonds?
India's benchmark yield at ballpark 7% is a draw-card for global funds chasing returns.
With rates falling across countries in various stages of economic development and size, India's benchmark yield at ballpark 7% is a draw-card for global funds chasing returns.
“Foreign investors are likely to find the interest rate differential between India and other developed economies attractive,” said A Balasubramanian, CEO - Aditya Birla Sun Life AMC. “While globally there are signs of a slowdown, India does not reflect the same. With a relatively stable currency, we are expected to have $7-10 billion net inflows into domestic debt securities this financial year.”
“It is also an opportune time for global investors, who can bargain hard for better rates and protection of investments (covenants) from capital-starved Indian entities,” he said.
Foreign portfolio investors sold net $6.9 billion of debt in 2018 versus $1.3 billion net investments so far in 2019, the ETIG Database statistics showed.
Recently, bond yields across the world have plummeted to either historical or near-record lows, especially in the developed markets.
Since Tuesday, global benchmark yields have plunged, with Sweden, France, Austria, Netherlands, and Germany returning zero or below. A negative yield means an investor risks losing even a part of the principal invested.
Overseas money is expected to flow into both state and corporate bonds.
“Globally, the re-emergence of growth concerns has led to a more benign environment for global bonds,” said B Prasanna, head, global markets group at ICICI Bank. “Monetary policy stance has also softened significantly across the world, with the Federal Reserve and the European Central Bank signaling greater accommodation.”
Back home, the combination of benign inflation and slowdown in growth prospects have triggered 75 bps of policy rate reductions, and more are on the cards. This has implied lower bond yields in Mumbai. Still, Indian yields offer relatively higher returns.
“The combination of relatively high yields, stable currency and expectations of continuing growth enhancing reforms should provide significant impetus for continued foreign investment into India,” said Prasanna.
The recent electoral mandate, combined with regulatory policies that seek to simplify the investing environment for foreign investors, should also add to investor confidence.
“Although India benchmark yield has fallen this financial year so far, still they look attractive in the global backdrop of slowing growth,” said Shailendra Jhingan, MD & CEO, ICICI Securities Primary Dealership. “Yields have gone down to zero or even negative. From that perspective, bond yields in India continue to draw investors, given India’s stable macros.”
Benchmark bond yields have shed about 50 basis points this financial year, pushing prices up. The gauge climbed three basis points to close at 6.84% Wednesday.