💰 India's Global Bond Ambition
India Inc has been performing unusually well on the global bond market. What does it mean for our future?
A lot of us have this notion: Whatever you do at the beginning of the year, sets the tone for the rest of the year.
If there were any merit to this statement then Indian companies are going to witness a great inflow of cash in 2022.
You see, Indian companies have truly begun the new year with a bang. They have managed to raise over $6 billion from the global markets in just the first two weeks of 2022, as compared to the $22 billion raised in the whole of last year! Reliance alone managed to raise around $4 billion in the first week of the year.
This shows that global investors still have faith in Indian companies with strong fundamentals, despite weakness in the global bond market as a whole.
Wondering how this will benefit us? ReadOn!
The Global Bond Market Outlook
Last year, Indian companies raised massive funds from global bond markets thanks to low interest rates which allowed people to borrow money easily and increased global liquidity.
As people had more cash in their hands now, they began looking for different investment avenues, with most of the money going into stocks and corporate bonds. This is because government bonds were paying a much lower interest rate than these other investments.
But since the Fed and The Bank of England announced interest rate hikes, many were worried that this borrowing bonanza would end.
You see, the global bond market is in a very weak and volatile position right now. There is a lot of uncertainty because major central banks could raise their interest rates at any time. And if they do, existing bond prices will fall. This is because new bonds with higher interest rates will come into the market. So, many investors are holding out for this increase in interest rates.
Plus, many investors have been burnt because of huge companies like China's Evergrande (a debt-ridden real estate company) defaulting on billions of dollars of payments.
However, these worries were unnecessary and the love for Indian bonds has carried over to 2022.
And as India Inc dipped its toes into international waters, it helped us understand how global investors feel about investments in India.
Given the current global bond market scenario, most people would have believed that interest in India which is an emerging market would be low.
But on the contrary, foreign investors are using Indian companies to diversify their portfolios. Great, right?
Yes. This could be a great opportunity to list on the global bond market indices. But what are those?
India on Global Bond Market Indices
Right now even though Indian bonds are open to foreign investors, they are not listed on global bond market indices like JP Morgan's Government Bond Index-Emerging Markets and Global Aggregate Index.
Those indices are kind of like the stock indices of the global bond market. Since Indian bonds are not listed on them, fewer people invest in them, just like how very few people invest in unlisted companies.Â
However, once we list on the index it will be like an IPO moment for the Indian Bond Market.
And according to a Morgan Stanley report, this could bring a cash inflow of around $170 billion over the next decade! It could increase foreign bond ownership from around 2% to 9% by 2031.
And this can majorly impact our economy, our growth, and even the value of our currency.
Yeah, a listing can achieve all that. Wondering how?
Well, firstly, the government will benefit with more access to global funds. In fact, Morgan Stanley predicts that the listing could help bring down our fiscal deficit to below 5% of the GDP by 2029 (it is 6.8% of the GDP right now).
Not just that, an increased inflow of foreign currency in India will also strengthen the price of the rupee. You see, currently, the value of the dollar is so high as compared to the rupee because the dollar is in high demand in India but low in supply. Once its supply increases, the rupee will grow stronger in comparison.Â
Plus, it will also help put many Indian companies on the global map by bringing more attention to investments in India. Currently, many foreign investors have not even heard the names of many of our well-established companies.Â
A total win-win situation for us.
Then why is India not listing on the global bond market indices?
It has been attempting to for a long time now. But compliance issues and other hurdles like the pandemic have kept this from happening.Â
However, most experts believe that we will finally achieve this milestone this year.Â
Do you think the listing will be able to achieve all that has been projected? Or does it seem too good to be true But should India rely on foreign money for its development? Or should we be rallying our own funds to help the country grow?
Only time will tell...
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