Since FAR Gsecs sets market access criteria for inclusion in these codes, the inclusion of FAR Gsecs is possible in both codes, if concerns about functionality / resolution constraints are advanced.
By Andre de Silva, Himanshu Malik and Hazel Loy
Indian government bonds have been on the radar for some time to be included in popular bond codes. One of the key questions for investors is the potential amount of credit that can be expected by adding Indian bond market indices. We focus on two indexes, the Bloomberg Global Aggregate Index (PGAI) and the JP GPI-EM Index (GPI-EM). The amount of financial monitoring. Since FAR Gsecs sets market access criteria for inclusion in these codes, the inclusion of FAR Gsecs is possible in both codes, if concerns about functionality / resolution constraints are advanced.
The weight of India’s bonds in both securities should be determined on the basis of the outstanding amount of FAR securities (more than $ 200 billion today) rather than the total outstanding amount of Gsec issues ($ 1,040 billion). When FAR was first introduced, it was priced at Rs. There were only five criteria worth $ 4.34 trillion ($ 7 billion), but it was decided that any new releases maturing in 5, 10 and 30 years would be included in the FAR. Since then, outstanding shares of FAR Gsecs have grown dramatically, approximately $ 20-25 billion per quarter. Considering a similar issue rate and a possible listing at the beginning of 2022, it can be assumed that about $ 220-240 billion is the outstanding shares of FAR Gsecs. This is similar to the size of the Indonesian government securities market ($ 216 billion) and leads us to believe that the potential weight of FAR Gsecs in the GBI-EM may be slightly higher than our previous estimate of 8-10%. 6-8. Schedule-related credits at the back of the% GBI-EM list could total $ 24-30 billion, while AUM tracking could be estimated at about $ 300 billion. Finally, the weights on the BGAI are based on the market capitalization ratio of its components, and the FAR Gsecs’ weight is expected to be close to 0.3-0.5%, with index-related receipts at $ 6-10 billion. Overall, the inclusion of India in these two global / emerging market securities is expected to generate $ 30-40 billion in foreign investment over a period of 10-12 months, so the monthly foreign debt will be $ 2.5 to $ 35 billion. Another thing to note is that unlike GPI-EM, India’s weight in PGAI is likely to continue to grow beyond 2022. Its outstanding FAR Gsecs shares will grow faster than other components of the index. Foreign investment in FAR Gsecs has already started to increase since the introduction of FAR in March 2020, while foreign outflows have come mainly from outside the FAR Gsecs. Since March 2020, non-resident FAR Gsecs holdings have increased by $ 4.2 billion, while foreign investors have reduced non-FAR Gsecs holdings by $ 6.2 billion. In particular, in anticipation of the positive announcements regarding the inclusion of the indexes, the pace of receipts appears to have increased in recent months, but it also highlights that improved market access is a factor in attracting foreign investment. We expect FAR Gsecs’ foreign ownership to increase from the current 3% to 10-13% by the end of 2022.
Looking at the precedents in the region, it took 20 months for China to be fully included in the BGAI due to its 6% overweight. However, based on the expectation that only Gsecs pending under the FAR will be included in the index, it is estimated that India represents only 0.3-0.5% by weight in the BGAI, which is similar to the size of Indonesia in 2018. Following in the footsteps of Indonesia, we expect India to be fully included in the BGAI in a single race. Although there are different deadlines for listing these two markets, the start date of the index is usually 3-4 months, which is the same for India.
In our opinion, confirmation may come at the end of this quarter, and once the above restrictions on policing / liquidation are resolved, the addition of securities will take effect at 1Q22. According to GBI-EM, we expect enrollment to take place in 10-12 months by 2022, with a c1% increase in index weight per month, taking the same approach as in China. .
Revised excerpts from the HSBC Global Research Fixed Earnings (Rates) Report dated October 12
Respectively, Head of EM Global Rate Research, Asia Pacific Rate Strategy and Associate, HSBC
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