Inflows from India’s bond index entry depend on what it sells

Live Mint
February 14, 2020

India is hoping to lure billions of dollars by getting its bonds included in global indexes.

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 administration may consider these three options:

1. New Bonds

India could lure $10 billion, assuming the new securities account for 30% 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.

2. 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% of the next fiscal year’s gross sales and debt switches via four benchmark bonds -- 6.18% 2024, 7.27% 2026, 6.45% 2029, 7.57% 2033 -- with already $35 billion in outstanding stock.

The government could fetch $18 billion via this route.

3. 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% 2025, 6.97% 2026, 7.88% 2030, 6.57% 2033 -- that have a combined outstanding stock of $50 billion.

Going down this road would lead to higher eventual weights of nearly 8% in the JPMorgan Global Bond Index and 0.16% in the Bloomberg Barclays Global Aggregate Bond Index, according to Deutsche’s report.

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