HSBC GAM has an overweight position in Indian local currency government bond in its multi-asset portfolios, Renee Chen, senior economist and investment strategist has said.
This is because government bond limits for foreign buying have been relaxed recently.
In the world of low global yields, Indian local currency government bonds offer a relatively high carry relative to competing asset classes, and a decent premium over local cash rates. ‘They also provide an attractive diversification option in multi-asset portfolios,’ noted Chen.
‘Furthermore, we believe the RBI’s commitment to its 4% inflation target is a positive, both for Indian bonds and the rupee in the medium-term.
‘Amid heightened global uncertainties, Indian local currency government bonds also benefit from an extremely low share of foreign ownership. Government bond limits for foreign buying have also been relaxed recently.’
In his view, these factors make Indian bonds an attractive proposition among local currency emerging markets debt, and justify his overweight position in multi-asset portfolios.
Indian equities and growth outlook
Overall, for Indian equities, the year-to-date rally has compressed the implied equity premium, said Chen.
‘Valuations now no longer look anomalous.'
However, Chen said there is positive economic growth momentum amid ongoing remonetisation, whilst a credible reform agenda and structural tailwinds (including demographics, improving infrastructure, urbanisation, a rising middle class, etc.) add to the positive cyclical picture.
‘Furthermore, India benefits from a relatively closed economy in the face of any potential rise in global protectionism.
‘We also expect a modest appreciation in the rupee over the medium-term, from which foreign investors would profit.’