Blog: Why consider the Indian Fixed Income Market

The Indian fixed income market might be unknown to many, and often only a part of their investment through an Emerging Market Debt Fund. As Europe and USA is getting closer to negative growth, and China having its own problems, it is time to look elsewhere. Now it might be time to consider your exposure to the Indian market, and especially fixed income. The fixed income market of India offers both size as one of the larger EM-markets, and attractive yields with a 10 year level of about 7,4%.

India is one of the most interesting countries for the next decade.  The world’s largest democracy, which also is expected to have the fastest GDP growth of OECD and Asian countries, according to IMF. India has an average age of 28, compared to USA and China at 38, and Europe at 43 Its working age population growth is expected to be 100 million over the next decade, compared to mostly negative growth in the western world.

From 2014 and until today, Prime minister Modi have introduced a number of important reforms which have been painful, but needed. The results are that India’s foundation for growth stand much stronger for the future.

India also has one of the healthier economies in the EM-world. As IT-exports have grown substantially the last years, specially during Covid-19, Forex-reserves are at about 600 billon USD. The “stickier” FDI-flows are substantially higher than more short-term FPI-flows, and the currency (INR) have shown quite stable depreciation against USD for a number of years. External debt as a % of GDP is at 18 %, compared to considerable higher number for comparable countries.

The fixed income market in India is mainly based on state-issued papers, as 47 % are issued by the central government, 21 % are issued by state governments and 6% T-bills. This adds up to a total of 74%.  The daily trading volumes are also dominated by the government securities.

The annualized returns of the EMD-market tell the story when it comes to India. By investing in India via the Nifty Composite Debt Index the last 10 years, you would have had 4,3 % annual return versus the JPM EMBI which would have given you 0,4 %.

By investing in EMD-funds you include the broad range of countries which to some degree, also includes countries you do not want to invest in. A pure India fund could be stand-alone, but also as a part of a more regional approach/add on towards the areas which you believe have best potential.

As a Nordic/European investor it is important to select the right active manager for your India Investments. ICICI Prudential AMC have a large team with an impressive knowledge and historical return. Get in touch with India Trading Nordic, and we will set you up for a meeting with the portfolio manager at ICICI Prudential AMC.