Daily Management Review

As India Looks To Attract Foreign Investors, It Lists Its First-Ever Bond Index


As India Looks To Attract Foreign Investors, It Lists Its First-Ever Bond Index
Opening up India’s debt markets to the rest of the world, the Indian government listed its first ever bond index on the London Stock Exchange on Friday.
The index will consist of Indian rupee-denominated government bonds – a first of its kind for India and was launched in collaboration with global index and data provider FTSE Russell.
"It will turn out to be quite significant. If you look at the Indian market, it is around $1.7 trillion, of which $770 million is government issuances," Arundhati Bhattacharya, chairwoman of the State Bank of India (SBI), said on Friday.
It is expected that international investors will now get the ability to take decisions regarding investment in these papers because they will now have transparent benchmark or index on which to base their decisions, she explained.
"We are also hoping to get a few products like ETFs (exchange-traded funds) based on these indices to enable a larger population of investors to come to India."
Bhattacharya is confident that there is a lot of potential for development in the Indian bond market which is still in its nascent stages of development as compared to the rest of the world.
"India has a significant domestic bond market that continues to see strong demand from foreign investors," Waqas Samad, chief executive officer of fixed income and multi asset at FTSE Russell, said in a press statement. He added that the listing would enable developing index products that can create "greater awareness and foster liquidity across the Indian domestic fixed income spectrum."
Ever since Modi came to power in May 2014, the Indian economy has been in a state of transition. Raghuram Rajan took charge of the Reserve Bank of India, the country's central bank a few months before that, in September 2013. Because they promised business-friendly reforms and slowly incentivized growth in India, investors immediately fell in love with the Modi-Rajan duo. foreign investors pumped their money into various areas of the economy more and more after that.  
However, after speculation of a rift between the ideologies of the current government and Rajan, investors suffered a small blow when Rajan's term came to an end in September 2016. And, in a move that reassured investors across the globe, his successor Urjit Patel almost immediately took over the role of a market-friendly central bank governor.
Following on from that, foreign investors have also applauded the government's efforts to launch the demonetization drive.
Estimated to be much bigger than even New Zealand's $170 billion economy is India’s bad loan problem. After data from Axis Bank and ICICI hit the wires, the true extent of these bad loans was laid to rest. But as investors and analysts compare the mounting loan problem to that of the U.S. subprime crisis, the long-term impact of this continues to baffle them.
"While the Indian government doesn't want to underwrite all of this, they have come up with legal structures to help resolve this issue. As you know most of these currently are in the bankruptcy courts. Bankruptcy courts have started operating in India and it is to the credit of this government that as complicated a law as this was brought within one-and-a-half years of the government coming in place and the courts have actually started operating in super quick time," Bhattacharya said.
"We are hopeful that as this process goes through the bankruptcy courts, we will see resolutions that are acceptable and those that are not suspect of moral hazard which obviously is a major downside for the resolution of any of these things."