Bond index inclusion benefits India growth

New BNP Paribas report signals boost to India's credit rating.

none

It’s a positive outlook for India, with a recent bond index inclusion and strong growth, finds a new report by BNP Paribas’ market research platform, Markets 360.

“The recent inclusion of Indian Government Bonds (IGBs) in the flagship JP Morgan GBI-EM could yield a number of benefits, in addition to lowering government bond yields and appreciating the INR,” says Chandresh Jain, Rates & FX Strategist, BNP Paribas.

Inclusion of Indian Government Bonds (IGBs) could yield a number of benefits.

Chandresh Jain, Rates & FX Strategist, BNP Paribas

This development may empower the government to increase expenditure, potentially running larger deficits without funding concerns, as global investor inflows can potentially finance the structural balance-of-payment deficits in the medium term, the analysis notes. “This can be achieved without significantly curtailing growth-oriented infrastructure expenditure. Higher foreign ownership of IGBs is also a net positive for growth via the fiscal multiplier channel,” adds Chris Poh, APAC Economist, BNP Paribas.

Higher foreign ownership of IGBs is also a net positive for growth.

Chris Poh, APAC Economist, BNP Paribas

India’s domestic corporate bond market has largely been overlooked by foreign investors, but inclusion in global bond indices may alter this landscape, according to Markets 360 analysts. An influx of foreign investors into the government bond market could stimulate demand for these fixed-income securities.

The combination of lower borrowing costs and improving growth could lead to an enhanced debt profile for the country, and this improvement could potentially boost the country’s credit rating in the medium term.

BNP Paribas does not consider this content to be “Research” as defined under the MiFID II unbundling rules. If you are subject to inducement and unbundling rules, you should consider making your own assessment as to the characterisation of this content. Legal notice for marketing documents, referencing to whom this communication is directed.