HSBC Helps Funds Navigate Indian Bond Market as Inclusion Gains Ground

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Ahead of India's entry into the Global Debt Index, HSBC Holdings plc is working with more than 200 overseas funds to help them establish a presence in India.

The bank is one of the trustees helping global investors with registrations and other formalities as they prepare for the inclusion of India's sovereign debt in the JPMorgan Emerging Markets Index from June.

"The inclusion of the bond index is the beginning of the journey," said Anita Mishra, Head of Markets and Securities, HSBC India, in an interview last week. The bank is conducting roadshows in London, Hong Kong and the U.S., and is working with the foundation to "get the India story out there".

India's weighting in the index will be capped at 10%, making it crucial for funds tracking the index to include Indian debt in their portfolios. Inclusion in the index also creates business for banks and fund managers as they prepare for inflows of up to $40 billion.

Mishra said that as passive money starts to flow in, most investors will need help from the "onshore entry" side of the noodle, which will be the "biggest concern" for banks.

Foreigners have invested nearly US$10 billion in JPMorgan's index-qualified bonds since the company announced its launch in September. So far, these bonds have been the best performing local currency emerging Asian bonds in 2024, according to data compiled by Bloomberg.

HSBC is also using its foreign securities carry investor license from GIFT City, a free market oasis designed to rival Singapore and Dubai, to offer an Arithmetic Swap for investors who wish to invest in India without necessarily setting up store there. This instrument provides overseas investors with the same return as holding local securities, without the need to open a domestic account or comply with local investment laws.

"Since February, we should now be trading around $150 million to $200 million, but we are aiming for much higher than that," Mishra said of the volume.

Market Entry

Investors have pointed out several hurdles in obtaining onshore licenses in India, including cumbersome documentation processes, transaction margin requirements, and barriers to the free flow of funds out of the country.

The FTSE Russell has recently refrained from including India in its Emerging Markets Index for the time being, but has acknowledged that India has made progress on the 'market entry' front. The regulator has introduced a common application form for foreign investors, which allows for digital signatures, among other things.

Bloomberg LP, the parent company of Bloomberg Index Services, whose indexes compete with those of other providers, will also include India in its Emerging Markets Index starting in January.

-Assisted by Anirban Nag.

(HSBC swaps added in paragraph 7).

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