The decision is the latest sign of India’s growing appeal to international investors as the country’s economic growth outstrips peers, its geopolitical influence grows and global companies including Apple Inc. look for alternatives to China. While foreigners play a small role in the Indian bond market, inflows have been picking up in recent years and the country’s assets have proven resilient to financial turbulence that has roiled other developing-nations.
“Foreign investors will have access to a large, idiosyncratic factors driven market, while domestic investors will welcome investors with varying risk-return preferences,” said Nagaraj Kulkarni, co-head of Asia rates ex-China at Standard Chartered Plc in Singapore. He expects the decision to drive inflows of as much as $25 billion by March 2025.India bond yields and swap rates are set to slide when the trading resumes. The rupee strengthened 0.4% versus the dollar in offshore trading.
Foreign investors have bought $3.5 billion worth of Indian government debt this year, according to data compiled by Bloomberg. “With inflation coming under control, the inclusion will open more gates for foreign capital to flow into India,” said Charu Chanana, a strategist at Saxo Markets in Singapore.
Still, authorities in India have been largely uncompromising in making changes to tax policies that would make it easier for the securities to be added to global indexes. Korea, another large emerging market, signed an agreement to open an omnibus account with Euroclear Bank SA, helping foreigners’ access.
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