Mumbai: Goldman Sachs has made a fresh pitch for India’s inclusion in global bond indices, citing the opening up of government bonds to foreign investors through the fully accessible route (FAR). According to Goldman Sachs, the FAR bonds will make India eligible to be part of global indices by 2023. Currently, a fourth of RBI-issued bonds are included in FAR.
“If India is included in the GBI-EM (Government Bond Index – Emerging Markets), we think it will enter at the 10% weight cap, which could prompt around $30 billion of passive inflows (as a one-off stock adjustment over the scale-in period), helping India to finance its fiscal and current account deficit,” said Goldman Sachs in a report. GBI-EM Global Diversified is an index managed by JP Morgan, which is tracked by fixed income investors worldwide.
According to the Goldman Sachs report, India’s bond market is one of the largest in emerging markets with a market capitalisation of $1 trillion. This is equal to that of Brazil, double the size of Mexico and triple that of Indonesia. Despite the size, India’s government bonds have never been part of global indices as the Centre has been cautious in allowing foreign investments.
“With Russia now removed from the index, the GBI-EM Global Diversified is concentrated in a few markets. Given its high nominal yields, depth and size, we think investors would welcome India from a diversification perspective,” the report said. One of the impediments to India’s inclusion in the bond indices was the issue of taxation.
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