Indian Bond ETFs to Attract Billions as Amundi, BlackRock Compete

• News
• 2024-07-25

Some of the world's largest Exchange Traded Fund (ETF) providers are fiercely competing as India's bonds are expected to be included in major global indices in the coming years, attracting billions of dollars in inflows.

Since JPMorgan's decision last year to include Indian bonds in its main emerging market index, companies such as BlackRock, Amundi SA, and Janus Henderson's Tabula Investment Management have launched new ETFs in this sector. According to estimates by asset management firm DWS Group, such ETFs will attract between $5 billion and $10 billion in the medium term.

Benoit Sorel, Global Head of ETFs, Index and Smart Beta at Amundi, the largest ETF provider in Europe, said: "India is too big to ignore. It is becoming a key allocation in emerging market debt. The first major interest comes from professional investors who are benchmarking their allocations."

Before joining Amundi last year, Sorel worked at BlackRock for over a decade. Last month, he helped oversee the company's newly launched ETF for Indian government bonds.

By next March, India's weight in the JPMorgan Emerging Market Bond Index will jump from the current 4% to 10%. These securities will also be included in the developing country debt indicators owned by FTSE Russell and Bloomberg. This process will bring billions of dollars into a market that is mainly dominated by domestic players. So far, this market has been largely unaffected by global volatility due to low overseas ownership.

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According to data compiled by Bloomberg based on the largest regional markets, rupee-denominated government bonds are currently the highest-yielding bonds in Asia. Data compiled by Bloomberg shows that Indian bonds have attracted $15.7 billion in inflows this year, second only to China, South Korea, and Japan in Asia.

Attractive Market

DWS believes that Indian assets have significant upside potential due to India's demographic structure and its relatively low correlation with other global markets.

Olivier Souliac, Head of Xtrackers Index in Frankfurt at DWS, said: "The Indian stock market is robust, with a young and well-educated workforce, and is less exposed to geopolitical risks, making India attractive to both equity and fixed-income investors."

Indian government bond yields are the highest in Asia.Not everyone believes this is the ideal time to buy Indian debt.

"The market is too crowded," said Shamaila Khan, head of fixed income emerging markets and Asia-Pacific at UBS Asset Management in New York. "India is a positive story in the medium term, but the market has already digested too much good news for now."

She indicated that dollar bonds from Sri Lanka and Pakistan, as well as high-yield bonds from China, appear to be better options.

Sungate Investment stated this month that due to bureaucratic challenges in investing in India and the company's preference for higher interest rates offered by Latin America, it would avoid investing in Indian sovereign bonds.

BlackRock pointed out that one of the advantages of buying Indian bond ETFs is that they will help investors bypass any bureaucratic obstacles in investing in the country.

Hui Sien Koay, BlackRock's Chief Fixed Income Product Strategist for Asia-Pacific based in Singapore, said: "Foreign investors face structural challenges in easily accessing these bonds. ETFs can eliminate all these obstacles. ETFs are very accessible to everyone."

She stated that there are many reasons why investors cannot ignore India for the long term, "This is the last large market with a scale over 1 trillion dollars to enter the widely watched index. It has depth, breadth, different maturities, long and short, which is why we are involved."