Pumping India’s hope, the strategists at Morgan Stanley – Min Dai, Madan Reddy, and Gek Teng Khoo – had said that there is a very significant chance that JP Morgan will confirm the inclusion of the Indian bond market in its index.
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The Morgan Stanley strategists stated that they anticipate the inclusion to bring up to USD 30 billion into the country in the upcoming fiscal year. According to them, the index team now has more incentive to include India due to Russia’s exclusion from JP Morgan’s GBI-EM Global Diversified index, and the majority of GBI-EM investors either favour or don’t object to the inclusion.
The Reserve Bank of India’s decision to grant unrestricted access to some bonds to foreign investors has further improved optimism. Next year, some of these bonds will be able to be counted in major indices.
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However, as per some recent reports, the inclusion is delayed until next year as the government has yet to account for critical issues concerning tax policy changes, as it would have been unfair to domestic investors. Also, the government is unwilling to exempt foreign investors from capital gains tax.
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What is a global bond index?
A global bond, sometimes known as a Eurobond, is issued and traded outside of the nation where the bond’s currency is denominated. In simple terms, it is a guide to investing, as it can be challenging for a global investor to maintain track of various bond markets across many nations. Globally, investors follow important indices to guide their investing choices.
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Global funds have a goal to either match or outperform the results of the indices, and according to that, they either increase or cut their investment in a particular bond market.
The ability to trace the movement of bonds across several jurisdictions assists investors in making comparative analyses. The indexes act as benchmarks for major investors’ investments, who often choose to hold onto their money for longer.
How will it help the Indian economy?
For starters, there will be less strain on commercial banks if India is added to the global bond index and begins to draw foreign capital.
Once Indian bonds start attracting foreign inflows, there will be increased confidence in Indian currency, and it will contribute to higher strength and stability. Bond yields may decrease when the economy receives more foreign investment.
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As a result of cheaper borrowing costs, this is advantageous to both the government and Indian businesses. The rupee exchange rate can thus be stabilized, and the country’s balance of payments can benefit.
In the current scenario, the overall percentage of international investors is still limited, and domestic banks dominate the local bond market. The Indian bond market can get more acknowledgment if foreign investors have more involvement. This facilitates the nation’s ability to raise more financing for development.
At least $40 billion will probably be added to the Indian debt market once India is added to the index. The capital could be raised at a reduced cost if the cost of borrowing declines for both public and private businesses. The inclusion in the index would also result in consistent dollar inflows from passive funds and even at the time of upheaval.
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