India’s fast-growing economy and active government policy is making the South Asian nation an increasingly popular investment target, HSBC Global Asset Management Ltd said yesterday.
India has evolved into a major economy on the world stage with GDP growth estimated to hit 7.4 percent this year, but its bond and stock markets remain underweight by global investors, the fund house’s India-based analyst Gordon Rodrigues told a media briefing in Taipei.
Government issuance dominate the bond market in India as banks have a statutory investment ratio, while pension funds and life insurers are also keen buyers, Rodrigues said.
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As a result, “the corporate bond market is underdeveloped, but is likely to grow rapidly in coming years,” on the back of healthy economic fundamentals, controllable inflation and a stable currency, he said.
HSBC expects the Reserve Bank of India to keep policy rates unchanged this year to help boost credit growth.
The Indian government has sought to attract foreign capital and last week announced it would raise the cap on foreign portfolio investment by 0.5 percent, to 5.5 percent of outstanding stock of securities, in next fiscal year and to 6 percent in 2020, Rodrigues said.
Favorable economic conditions and policy make India’s fixed income tools a favored investment target, he said.
Although China attracts more foreign capital, the growth rate of foreign capital in India is even more striking, the fund house said.
Fast foreign capital inflows have strengthened India’s industrial production, support its account balance and consolidate economic stability, Rodrigues said.
Sanjay Shah, a fixed income analyst at HSBC Global Asset Management, said India’s bonds generate higher yields than bonds elsewhere with the yield of 10-year Treasury bonds reaching 7.676 percent.
The rupee is relatively stable compared with other major Asian currencies, lending further support to Indian bonds, he said.
As for equities investment, India’s stock market accounts for a tiny 1 percent in MSCI weighting, suggesting ample room for upward revisions in coming years, said Nilang Mehta, an equities analyst at the fund house.
However, oil prices, disappointing earnings growth and a heavy election calendar are major downside risks for India, Mehta said.
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