Inflows from India’s Bond Index entry will depend on what it sells

Bloomberg Mumbai | Updated on February 14, 2020

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India hopes to lure billions of dollars by getting its bonds included in global indices.

The inflow, according to Deutsche Bank AG, hinges on the strategy Prime Minister Narendra Modi’s government uses for the issuance, and its size. The lender says the Government may consider these three options:

New bonds

India could lure $10 billion, assuming the new securities account for 30 per cent of the gross debt sales and switches for the year starting April 1. The issuance would take the stock of these bonds to $45 billion by the end of the fiscal year.

“This is the cleanest route to take in some sense, because you are starting a new series of bonds and designating them as special securities,” said Sameer Goel, head of Asia macro strategy at Deutsche Bank in Singapore.

Use existing benchmarks

“India could earn higher initial weights in global indexes by re-purposing existing bonds as special securities,” Goel and his colleague Mallika Sachdeva wrote in a report last week.

This scenario foresees the government conducting 30 per cent of the next fiscal years gross sales and debt switches via four benchmark bonds — 6.18 per cent 2024, 7.27 per cent 2026, 6.45 per cent 2029, 7.57 per cent 2033 — with already $35 billion in outstanding stock.

The government could fetch $18 billion via this route.

Reopen old securities

Opening up older securities with even more outstanding stock may help attract $22 billion.

Under this scenario, Deutsche assumes reopening of four liquid bonds issued after 2015 — 7.72 per cent 2025, 6.97 per cent 2026, 7.88 per cent 2030, 6.57 per cent 2033 — that have a combined outstanding stock of $50 billion.

Going down this road would lead to higher eventual weights of nearly 8 per cent in the JP Morgan Global Bond Index, and 0.16 per cent in the Bloomberg Barclays Global Aggregate Bond Index, according to Deutsches report.

Published on February 14, 2020

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