HSBC helps overseas funds navigate India's bond market as inclusion nears

By Malavika Kaur Makol and Subhadip Sircar

HSBC Holdings Plc is engaging with over 200 overseas funds to help establish their presence in India ahead of the nation’s entry into global debt indexes.

The bank is among custodians helping global investors with registration and other formalities as they gear up for the nation’s sovereign debt to be added to JPMorgan Chase & Co.’s emerging-market gauge from June.

“Getting the bond index inclusion is starting of the journey,” Anita Mishra, head of markets and securities services for HSBC India, said in an interview last week. The bank is holding road shows, meeting funds in London, Hong Kong and the US, to “get the India story out there”.

India will reach the maximum 10 per cent weighting in the gauge, making it crucial for funds tracking the index to add the nation’s debt to their portfolios. The inclusion also brings business for banks and money managers as they position for inflows of as much as $40 billion.

As passive money starts to flow in most investors will need help with “onboarding onshore”, making it a “single biggest focus” for the bank, Mishra said.

Foreigners have poured in nearly $10 billion into the nation’s index-eligible bonds since the JPMorgan’s announcement in September. The purchases have helped make the securities the best performers in local currency emerging Asia debt so far in 2024, according to data compiled by Bloomberg. 

HSBC is also leveraging its foreign portfolio investor license in GIFT City — a free market oasis aimed to take on Singapore and Dubai — to offer total return swaps to investors who want India exposure without necessarily having to set up shop. The instrument gives overseas investors the same payoff they would get by owning local securities without having to open a domestic account or deal with local investing regulations.

“We should be around $150 million to $200 million now, since starting in February, but the aim is to be substantially higher than this,” Mishra said, refering to the volume of trades.

Market Accessibility

Investors have cited several obstacles to obtaining an onshore permit in India, including heavy documentation process, margin requirements for trading, barriers to freely move money out of the country.

FTSE Russell recently held off from adding India to its emerging market index, but acknowledged progress in “the accessibility” of the market. The regulator has introduced a common application form for foreign investors and allowed use of digital signatures among others.

Bloomberg Index Services Ltd. will also start including India to its emerging markets index from January. Bloomberg LP is the parent company of Bloomberg Index Services, which administers indexes that compete with those from other providers.