 "Indian bond market to touch $160 billion by 2018: Morgan Stanley")
A recent report titled 'The Next India - Fixed Income: From Volatility to Moderation', co-authored by Viktor Hjort, head of Asia fixed income research at Morgan Stanley, suggests that a pick-up in economic growth and rising private capital needs will be important drivers for the Indian credit markets, along with an increased reliance on the debt capital markets in the future.
In 2007, the Indian USD/G3-denominated bond market was small and illiquid, composed mostly of state-owned banks. Financials together accounted for more than 75% of the market by notional.
"Since the global downturn in 2008, much has changed. India's credit market has increased 2.4x in size, from $25 billion to $61 billion currently, with most of the growth taking place post-2010 and in non-financial corporate," the report says.
In the Asian region, Morgan Stanley expects India (15% of the USD/G3 bond market) to be the second largest issuer behind China (44%), which would dominate the USD/G3 bond market due to the size of its economy, the capital requirements, and tighter onshore lending conditions.
"On average, the Indian USD/G3 bond market should see annual gross issuance in excess of $30 billion by 2018. Again, non-financial corporates should dominate the issuance, accounting for more than 50% of the overall annual issuance by 2018," the report says.
But who's buying these bonds then?
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Morgan Stanley suggests that existing investors would be an answer, but they also expect global credit investors, Asian life insurers and Asian mutual funds to play a big role in future demand, not only for Indian credit but also for Asian credit in general.
"Indian credit has increasingly been held by non-Asian investors and funds over the past few years. Both these investor classes should continue to provide support as the sector increases in size. We believe the next decade for India's FX and fixed income markets will be marked by policy-driven reform and increasing liberalisation of its debt markets," the report says.
Adding: "On the one hand, the government has already embarked on second stage of economic liberalisation through raising FDI (foreign direct investment) limits in a push for more privatisation. On the other, a gradual opening up of the Indian debt markets will also expand the avenues available for funding private sector investment, which we see as a key driver for India's economic growth over the next decade."
| Breakdown of Asia ex-Japan G3 bond market 2018 estimates | |
| COUNTRY | SHARE |
| China | 44% |
| India | 15% |
| Korea | 13% |
| Singapore | 7% |
| Hong Kong | 6% |
| Taiwan | 5% |
| Thailand | 4% |
| Indonesia | 4% |
| Malaysia | 2% |
| TOTAL | 100% |
| Source: Morgan Stanley report | |