Home >Markets >Stock Markets >Morgan Stanley expects HDFC, Bajaj Finance, SBI Cards to benefit from higher bond inflows into India

India is likely to be included in one of the world’s top global bond indices early next year, which could attract $40 billion of inflows to the country’s debt market in the next two years, according to Morgan Stanley. JPMorgan’s influential GBI-EM (government bond index - emerging markets) and Global Aggregate indices are likely to include India before February 2022, as per the note. 

It expects banks to benefit from stronger growth and lower borrowing costs, under which, private banks, particularly large ones, should be key beneficiaries, as per the investment banking firm. Among non-bank financials, Morgan Stanley expects HDFC Ltd., Bajaj Finance, SBI Cards, Mahindra Finance and Cholamandalam Finance which are likely to be potential beneficiaries. 

“Foreign ownership of Indian government bonds has been declining, but 2022 would be the turning point that could bring an acceleration of bond inflows," Morgan Stanley strategists led by Min Dai, wrote in a note. The inclusion in global bond indexes should bring around $18.5 billion in inflows every year over the next decade, compared to just $36.4 billion in the last ten years.

According to Morgan Stanley, the inclusion in the global bond index could push the government to open its bond market further by removing foreign portfolio limits for all bonds in a bullish scenario.

Additionlly, structural surplus in balance of payments and better productivity could drive 2% appreciation per year in the rupee’s real effective exchange rate. Also, foreign inflows could flatten India’s sovereign bond curve by 50 bps, recommend going long 10-year bonds, targeting 5.85% yield level. The inflows would also reduce India’s borrowing cost and improve its debt sustainability, helping retain its investment grade rating, Morgan Stanley said.

Since 2019, India has been working towards being included in global bond indices as rising government borrowing and a desire to push investment rates higher have necessitated opening up the domestic bond market to a broader investor base.

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