Cheap bonds set India apart as the JPMorgan index date approaches

Cheap bonds set India apart as the JPMorgan index date approaches

Just months before the country's debt was included in JPMorgan Chase & Co.'s indexes starting in June, investors found the benchmark 10-year note to be more appealing since it provides a premium of almost 270 basis points over the earnings yield for the MSCI India share index.

Investors veering away from China are increasingly choosing Japan and India.

Despite being Asia's best-performing bond market this year, Indian stocks have surged to become some of the most expensive in the world.

Just months before the country's debt was included in JPMorgan Chase & Co.'s indexes starting in June, investors found the benchmark 10-year note to be more appealing since it provides a premium of almost 270 basis points over the earnings yield for the MSCI India share index.

Investors have not yet factored in a lot, according to Ray Sharma-Ong, investment director of abrdn Plc. He continued, saying, "We are both positive on both Indian bonds and stocks," adding that the addition of the JPMorgan index could increase possible returns on fixed-income investments.

Investors turning their backs on China are increasingly choosing Japan and India instead of China. This has resulted in Indian stocks selling at around 22 times projected profits over the next 12 months, compared to 16 for Japan and 9 for China, per Bloomberg statistics derived from MSCI Inc.'s indexes.

Global asset managers have reduced their holdings in Indian equities due to the stretched valuation; they have pulled out $1.1 billion in April alone. They also sold $1.3 billion in bonds last month because to expectations of a limited number of Fed rate reduction this year, which hurt riskier assets, according to data collated by Bloomberg.

However, investors like ABN have found India's government debt to be more appealing due to its favorable rates and status as one of the least volatile emerging market currencies.

"This market can receive a lot more capital commitments from both domestic and foreign investors," said Jitania Kandhari, deputy chief investment officer of Morgan Stanley Investment Management's solutions and multi-asset business. India "is in a geopolitical sweet spot and has the necessary conditions for growth, which are demographics," the expert said.