Passive investments will make way into India once government bonds become part of global indices: SEBI chief

Mumbai (Maharashtra) [India], March 13 : A lot of passive investments will automatically come into the country once the government of India bonds become part of the global indices, said Securities and Exchange Board of India (SEBI) Chairperson Madhabi Puri Buch.
"The reason we are delighted is that once a benchmark and a yield curve have been established for the sovereign debt, then there is a lot of confidence in terms of investing in the corporate debt as well," she said at an event called 5th SEBI-NISM Research Conference.

In a significant development that could pull in foreign funds into India's debt market JPMorgan Chase & Co will add Indian government bonds to its benchmark emerging-market index starting June 28 in 2024.

The inclusion of Indian government bonds in the JPMorgan Government Bond Index-Emerging Markets index could be seen as yet another sign of its growing appeal to global investors as it continues to remain one of the fastest-growing major economies.
Reports suggest Indian government bonds could get an additional boost in 2024, with Bloomberg proposing their inclusion in its indices starting September 2024.

These developments hold significance particularly as various global manufacturing behemoths are looking at India to set up shop as part of their China+1 diversification strategy in a post-pandemic world order.

"I think the important thing is to take stock of where we are already. This is a very a little known fact, but if you look at our bond market, even as it exists today, While the secondary market has relatively very low liquidity, because most of the investors are buy and hold kind of investors, the primary market is actually very robust," Buch said.
"So what's really happening, we see here, this is a percentage which is reflecting that if the entire corporate sector in India is borrowing 100 rupees from the banking system, how much is it borrowing from the bonds? through the markets, through the bond market. So as you can see, it reached a peak of about 68 per cent, almost 70 per cent," Buch said.
Compared with India's equity market, which is roughly one time its GDP, the SEBI chief projected that the total value of our REIT, INVIT, and municipal bonds can be equivalent to India's GDP.
"So that is the opportunity for growth that is available to us as a nation," she added.
"The value of REITs, INVITs, and municipal bonds will far exceed what is today the value of goods and services which is produced by the corporate sector. Now in this context what is it that we at SEBI see as the building blocks. Every ecosystem has building blocks and it's the regulator's job to ensure that those building blocks in place to facilitate that growth," she explained the rationale.
The strength of India's equity markets come from retail investors, not just directly but through mutual funds, through insurance, through pension fund routes, she said.
SEBI chief said the regulator ensured proper governance and disclosures; reduced minimum investment size in debt products; facilitate innovation and digitisation of the entire ecosystem.