Inclusion of Global Bond Index to bring turning point for India: Morgan Stanley

“Foreign ownership of Indian government bonds is declining, but 2022 will be a turning point that could accelerate bond flows,” Morgan Stanley strategists led by Min Dai wrote in a note. Joining the global bond index should come to $18.5. in flows every year over the next decade, compared to just $36.4 billion in the previous ten years.

India is attempting to include its sovereign bonds in the famous global bond index to lure foreign inflows and reduce the old budget deficit, which soared to a record high in the financial year ended March as the coronavirus weighed on the economy. Was.

According to Morgan Stanley, global bond inclusion will “push India’s balance of payments into a structural-surplus area, indirectly creating an environment for lower cost of capital and ultimately positive for growth.”

Here are some more thoughts from Morgan Stanley:

• Structural surplus and improved productivity in the balance of payments can increase the real effective exchange rate of the rupee by 2% per annum
• Foreign inflows could flatten India’s sovereign bond curve by 50 bps, advises going long 10-year bonds targeting 5.85% yield level
• “A historically steep curve suggests a substantial risk premium in price and may flatter the foreign demand curve”
• The inflows will also lower India’s cost of borrowing and improve its debt stability, which will help maintain its investment grade rating.
• Banks will benefit from strong growth and lower borrowing costs; Private banks, especially large banks, should be the major beneficiaries. In non-bank financials, the potential beneficiaries are likely to be HDFC Ltd, Bajaj Finance, SBI Cards, Mahindra Finance and Cholamandalam Finance.