🇮🇳 Indian Bonds Are Looking Stronger Than Ever⚡

Welcome to this week’s issue of the Altsights newsletter!

✅ Sensex and Nifty hit a fresh all-time high all over again!
✅ The 53rd GST Council meeting introduced a slew of fresh GST rate cuts.
✅ India set for a decade-high $2 billion bond inflows this month.

Here's What's in Store for You Today:

• The Big 3️⃣ Numbers

• Bonds: The Key to $10 Trillion Economy Dream? 🚀

  • Closing Up On Stocks 📈

  • Increased Retail Interest and Participation ⬆️

  • Why You Should Invest in the Bonds? 💰

  • Best Ways to Invest in Bonds 💰

• Reader’s Spotlight💡

The Big 3️⃣ Numbers  

Bonds: The Key to $10 Trillion Economy Dream? 🚀 

India’s bond market has seen rapid growth, expanding by 77% in just the past five years—from ₹108.8 lakh crore in FY18 to ₹192.4 lakh crore in FY23.

Last year alone, Foreign Portfolio Investors (FPIs) pumped over ₹1.21 lakh crore into India’s debt market. This is the highest yearly inflow we’ve seen in more than nine years.

But how do increased bond inflows matter to economic growth?

Increased inflows into the bond market can potentially lead to economic growth. Here’s how:

Closing Up On Stocks 📈

India is probably the only major economy where the stock market ($5 trillion) is far bigger than the bond market ($2.5 trillion).

• The Chinese bond market ($19 trillion) is almost twice the size of its stock market ($10.5 trillion)

• In the US, the bond and stock markets are roughly the same size ($50-55 trillion)

So, it is likely that as our economy matures, India’s bond market becomes as big as, if not bigger than, our stock market.

Third Biggest Emerging Govt Bond Market

Although not as mature as other bond markets, the Indian govt bond market is still the 3rd largest among all emerging economies.

Increased Foreign Interest and Participation ⬆️

Foreign investors have been bullish on the Indian stock market for many years now but the same can’t be said for our bond market. This changed in 2024.

Since the start of 2024, foreign investors have bought a net ₹80 billion ($963 million) in rupee-denominated corporate bonds. This is a big change after six straight years of being net sellers.

Government bonds haven't gone unnoticed either. In fact, something remarkable is set to happen in that space.

Indian Govt Bonds are all set to be included in a global bond index for the first time in history.

JP Morgan is all set to include Indian Govt Bonds in its Emerging Market Government Bond Index (GBI-EM). The mere announcement has led to ~$9 billion in foreign inflows in Indian Govt Bonds.

Courtesy of this inclusion, an additional $20+ billion is expected to flow into Indian Govt Bonds over FY25.

To put this in perspective, DSP Mutual Fund manages about $18 billion in total assets in India, which they’ve accumulated over 25+ years.

India’s bonds (both govt and corporate) are expected to be included in other similar indices, such as those published by FTSE and Bloomberg. This will unlock more foreign money into Indian bonds.

Increased Retail Interest and Participation ⬆️

In recent years, retail interest and participation in the bond market have also increased notably.

This hasn’t happened by chance. Strategic reforms and policies like the following have played key roles:

• Sachetisation: Two years ago, SEBI reduced the face value of bonds from ₹10 lakh to ₹1 lakh. More recently, the face value has been further reduced to ₹10,000 to encourage retail participation.

• Democratisation: The government has also made it easier to invest in bonds online through OBPPs and RBI Retail Direct. 

• OBPPs: Online Bond Platform Providers (OBPPs) are SEBI-registered intermediaries that facilitate the online buying and selling of bonds.

• RBI Retail Direct: The Retail Direct Scheme is a one-stop solution for individual investors to buy and sell government securities without a demat account.

Why You Should Invest in the Bonds? 💰

The current economic environment is near perfect to invest in bonds for 3 reasons:

• High returns amid peak interest rates: With interest rates at near-peak levels, you can lock in high yields now and potentially benefit from capital gains when rates decline.

• Regular income: Bonds provide regular income through periodic interest payments offering a steady cash flow.

• Diversification: Bonds can help you diversify your stock investments and protect your portfolio during volatile market conditions. You should consider allocating 20-30% of your portfolio to fixed-income securities like fixed deposits and bonds.

Best Ways to Invest in Bonds 💰

If you're looking to invest in bonds, here are 3 easy ways to get started:

• Corporate Bonds through OBPPs: Corporate bonds often offer higher yields compared to government bonds, making them an attractive option for those seeking better returns. But risks should be understood well and considered.

• Government Bonds through RBI Retail Direct: Government bonds are among the safest investment options, providing steady returns with minimal risk.

• Debt Mutual Funds: Debt mutual fund categories like liquid funds, money market funds and corporate bond funds can be looked at to start with.

Reader’s Spotlight💡

Last week, Mithin from Delhi asked:

Like Mithin, are you too curious about personal finance and investing?

I’d love to hear from you!

Simply reply to this email with your question. Each week, I'll select the most insightful question and answer it for everyone’s benefit.

So, go ahead and ask. I can't wait to engage in meaningful conversations!

Cheers,
Madhu,
Founder, Altcase