India Bond ETFs To Draw Billions As Amundi To BlackRock Join Race

Some of the world’s biggest exchange-traded fund providers are battling it out for the billions of dollars expected to flow into Indian bonds in coming years through their inclusion in key global indexes.

BlackRock Inc., Amundi SA and Janus Henderson’s Tabula Investment Management unit are among those that have launched new ETFs on the sector since JPMorgan Chase & Co.’s decision to include Indian debt in its key emerging-market index last year. Such ETFs are set to attract $5 billion to $10 billion over the medium term, according to estimates by asset management firm DWS Group.

“India is too big to ignore,” said Benoit Sorel, global head of ETF, indexing and smart beta at Amundi, the largest European ETF provider. “It’s becoming a key allocation within emerging-market debt. The first key interests are coming from professional investors, who are benchmarking their allocation.”

Sorel, who worked for over a decade at BlackRock before joining Amundi last year, helped oversee the rollout of the company’s new Indian government bond ETF last month.

India’s weighting in JPMorgan’s emerging-markets bond index will jump to 10% by March from the current level of 4%. The securities are also set to be added to developing-nation debt gauges owned by FTSE Russell and Bloomberg. That process is poised to bring billions into the largely domestic-led market, that has so far been largely insulated from global gyrations due to low overseas ownership. 

Rupee-denominated government bonds are currently the highest yielding in Asia, according to data compiled by Bloomberg based on the largest regional markets. Indian bonds have attracted $15.7 billion of inflows this year, the most in Asia behind China, South Korea and Japan, data compiled by Bloomberg showed.

DWS sees plenty of scope for Indian assets to rise due to the country’s demographic makeup and their relatively low correlation with other global markets.

“The strength of its equity market, the youth and level of education of its workforce, but also its lower exposure to geopolitical risks make the case of India compelling to both equity and fixed-income investors,” said Olivier Souliac, head of Xtrackers indexing at DWS in Frankfurt.

Not everyone is convinced this is an ideal time to buy Indian debt.

“It’s too crowded,” said Shamaila Khan, head of fixed-income emerging markets & Asia Pacific at UBS Asset Management in New York. “India’s a positive story in the medium term, but right now there’s just too much good news priced in.”

Dollar bonds from Sri Lanka and Pakistan, along with Chinese high yield debt look to be better bets, she said.

PineBridge Investments said this month it’s avoiding Indian sovereign bonds due to the bureaucratic challenges of investing in the country and the company’s preference for the higher carry offered in Latin America.

BlackRock says one of the advantages of buying Indian bond ETFs is that they will help investors sidestep any bureaucratic obstacles of investing in the country. 

“There are structural challenges for foreign investors to get their hands on any of these bonds easily,” said Hui Sien Koay, lead fixed-income-product strategist for Asia Pacific at BlackRock in Singapore. “The ETF gets rid of all those. ETFs are so accessible to everyone.”

There are a number of reasons why investors won’t be able to overlook India for long, she said.

“It’s the last large market of over $1 trillion to enter widely followed indexes. It’s got the depth, it’s got the breadth, it’s got the different tenors, long and short, and that’s why we’re in the game.”