“Modi-nomics” creates new inflection point for Indian bonds

Prime Minister Modi’s economic reforms along with positive macro indicators signals future upside in Indian fixed income

Apr 4, 2018 | Ken Hu and Sujoy Das

Emerging market bonds stand out in the current environment for their high yields and diminishing currency risks, presenting a compelling alternative as fixed income markets in developed economies start to grapple with rising interest rates and a pull-back from quantitative easing support.

Despite the positive upside, Indian bonds are still under-owned by global investors. Improvements in the country’s economic picture are starting to gain recognition though, punctuated by Moody’s upgrade on India’s credit rating in November 2017 for the first time since 2004. In 2014, S&P also raised its outlook on India from “negative” to “stable” following Prime Minister Narendra Modi’s election. He has promised to usher in a new wave of prosperity by implementing a wave of supply-side economic policies known as “Modi-nomics.”

With general elections due in 2019, India’s path to continued structural improvement will come under increasing scrutiny. Lowering debt levels, increasing foreign investment, keeping a lid on inflation and generating job opportunities for India’s booming young population will all be critical success factors.

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