Modi opens bonds wider to foreigners to woo index funds

Bloomberg

Indian PM Narendra Modi’s government plans to allow foreign investors greater access to short-term and long-term government securities in a bid to tap money being poured into passive funds operated by firms such as BlackRock Inc.
Certain categories of sovereign bonds will be fully opened to non-resident investors, apart from being available to domestic investors, finance minister Nirmala Sitharaman said in her budget speech on February 1. The government will take a decision as early as within a month, Economic Affairs Secretary Atanu Chakraborty said.
“Most of bond investors now largely invest through indices,” Chakraborty said. “Recently, BlackRock, their big fund has become one of the largest funds using the passive investing route. So we shouldn’t miss that as that is a large investment.”
The move is seen as a precursor to India getting its securities included in global bond indexes. It gives foreign investors access to a high yielding market, while India can tap overseas savings as it ramps up spending to revive an economy growing at the slowest pace in a decade. BlackRock, the world’s biggest asset manager, attracted record inflows last year that boosted its holdings to $7.4 trillion, more than two-thirds of which is in products linked to indexes.
India will decide on the plan before the borrowing schedule for the year starting fromApril 1 is announced, Chakraborty said. The finance ministry is in discussion with the central bank on the securities to be offered.
“Both the securities which are in demand and the ones which have longer tenure would be opened,” he said. Given the possibility of sudden and huge inflows, authorities will probably offer a mix of three or four bonds across tenures, he added.