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Investing in Indian bonds in 2023 offers substantial potential not only for domestic but for foreign investors as well. This prospect is highlighted by India’s steady economic growth, a favourable interest rate environment, and the recent incorporation of the country’s bonds into critical emerging-market bond indices.
In recent years, the Indian bond market has experienced substantial growth. Between March 2018 to March 2023, there has been a 77% increase in the total outstanding bonds in the country. Notably, government bonds have surged by 85%, reaching a value of $1.83 tn.
During the same period, corporate bonds have shown a growth rate of 53%, totalling $510 bn. As per India’s CCIL and SEBI, the valuation of the India’s bond market stood at approximately $2.34 tn on March 22, 2023.
Meanwhile, JPMorgan has announced that it will be adding Indian government bonds to its Government Bond Index-Emerging Markets (GBI-EM) index suite. The process of inclusion is set to commence on June 28, 2024, and will gradually roll out over ten months. This is anticipated to attract a greater number of global investors, granting them improved access to the second-largest bond market in Asia.
“Higher foreign participation in India’s domestic government debt market would increase demand and meaningfully lower the cost of new government debt issuance…Market estimates suggest inclusion in major bond indexes could attract an initial inflow of $20 bn-$40 bn, increasing to $180 bn over the next decade,” says S&P Global.
Besides, not only is the Indian bond market growing, but it is also evolving. In January 2023, India issued its first sovereign green bonds, joining a growing list of countries to issue sovereign thematic bonds.
How to invest in Indian bonds?
With the Indian bond market expanding and evolving rapidly, we present a list of two fixed-income funds from two prominent asset managers.
Invesco India Bond Fund A-Acc shares
Established in 2014, the fund aims to create income and foster long-term capital growth through investments in a mix of Indian debt securities and Indian money-market instruments. It is actively managed and not constrained by its benchmark, the CRISIL 91 Day Treasury Bill Index, which is used as a point of reference for comparative purposes.
The fund has total assets under management of $259.07 mn. Also, it has an annual management fee of 1.25%, an entry charge of up to 5% and ongoing charges of 1.59%. The Invesco India Bond Fund has risen by 4.58% year-to-date. In the last five years, the fund has witnessed a jump in returns by 11.68%, while the benchmark has risen by 10.91%.
The fund’s top five major holdings consist of India Government Bond 7.170 17-Apr-2030 (19.3%), India Government Bond 7.100 18-Apr-2029 (14.7%), India Government Bond 6.790 26-Dec-2029 (12.9%), India Government Bond 6.790 15-May-2027 (6.3%), and India Government Bond 7.410 19-Dec-2036 (6%).
The fund is predominantly invested in government bonds (83.1%). This is followed by corporate bonds (7.8%), government-related (5.4%), financial (4.4%) and utility (2.7%). The fund has a lion’s share of allocation in bonds with a maturity of five to 10 years (64.6%).
83.1% of the fund has a credit rating of BBB, 13.2% are not rated, 3.7% are in cash & cash equivalents.
The fund is under the management of Freddy Wong and Yifei Ding. Wong has been overseeing the fund since November 2019, boasting a career of over two decades. On the other hand, Ding joined in June 2020, bringing his experience as a portfolio manager since 2012.
Abrdn SICAV I – Indian Bond Fund A Acc USD
Introduced in 2015, the Abrdn fund’s goal is to attain a blend of income and growth through investing in Indian bonds. The fund allocates two-thirds of its assets to Indian rupee-denominated bonds. These bonds are issued by the Indian government, government-related entities located in India, or companies operating within the country. It is noteworthy that the fund does not employ a benchmark for comparison purposes, it only uses the Markit iBoxx Asia India Index (USD) as a basis for setting risk constraints.
With total assets worth $211 mn, the Abrdn Indian Bond Fund imposes an annual management fee of 1%, less than the Invesco fund. Abrdn also bestows an entry charge of up to 5%. Along with this, the fund charges an ongoing fee of 1.16%. The fund is managed by Kenneth Akintewe, who has been at Abrdn for the last 20 years.
Year to date, the fund’s net returns have risen by 4.38%. However, three-year net returns have fallen by 0.54% while five-year returns have spiked by 3.15%.
The top 5 holdings of the fund include India Government Bond 7.36% 2052 (12.1%), India Government Bond 7.4% 2062 (10.9%), India Government Bond 6.45% 2029 (9.4%), India Government Bond 7.26% 2029 (7%) and India Government Bond 7.17% 2028 (6.6%).
In terms of sector allocation, Abrdn, like Invesco, has most of its investments in government bonds (79.5%). Quasi sovereign (13.1%), financials (5.3%), supranational (1.1%) and cash (0.9%) make up the rest of the holdings. Abrdn is largely invested in BBB-rated bonds (98%). This is followed by AAA bonds (1.1%) and not rated bonds (0.9%).
All fund figures as of 31 August 2023, unless otherwise indicated.
