Morgan Stanley expects HDFC, Bajaj Finance and SBI Cards to benefit from increased bond inflows to India

India is expected to be included in one of the best global bond indices early next year, which could attract $ 40 billion in inflows to the country’s debt market over the next two years, according to Morgan Stanley. JPMorgan’s influential GBI-EM (Government Bond Index – Emerging Markets) and Global Aggregate indices are expected to include India by February 2022, according to the note.

He expects banks to benefit from stronger growth and lower borrowing costs, whereby private banks, especially large ones, are expected to be the main beneficiaries, according to the bank. investment. Among non-bank financials, Morgan Stanley expects HDFC Ltd., Bajaj Finance, SBI Cards, Mahindra Finance and Cholamandalam Finance to be likely potential beneficiaries.

“Foreign ownership of Indian government bonds has declined, but 2022 would be the turning point that could lead to an acceleration in bond inflows,” Morgan Stanley strategists led by Min Dai wrote in a note. Inclusion in global bond indices is expected to drive $ 18.5 billion in inflows each year over the next decade, down from just $ 36.4 billion over the past ten years.

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

In addition, a structural balance of payments surplus and improved productivity could lead to an appreciation of 2% per annum in the real effective exchange rate of the rupee. In addition, foreign inflows could flatten the Indian sovereign bond curve by 50bp, which recommends opting for long 10-year bonds, targeting a yield level of 5.85%. The inflows would also lower India’s cost of borrowing and improve its debt sustainability, helping to maintain its investment grade rating, Morgan Stanley said.

Since 2019, India has been striving to be included in global bond indices, as the increase in government borrowing and the desire to push up investment rates have necessitated the opening of the domestic bond market to a base of wider investors.

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