Indian capital markets are booming – and fixed income is playing a crucial role. International investors are seeking to cash in on the success, according to a recent Coalition Greenwich report.
The overall global markets pool in the country was up 12% year-on-year between 2023 and 2024 to US$4.1 billion. Of this, FICC represented US$3 billion.
Within Asian emerging markets, India makes up an average of 22% of the FICC pool – second only to China, with 42% of the pie, and ahead of Hong Kong, with 8%.
INR-denominated bond issuance is up significantly this year, and Coalition Greenwich recognises an increase in local currency SSA bonds. This has pushed up activity levels in the derivatives market, it says, deepening liquidity.
“As the Indian economy grows, the bond market is likely to play a crucial role in providing funding for companies and infrastructure projects,” stated the report’s authors, Aamir Hazaria, Bhavya Ahuja and Crisil’s principal economist Dipti Deshpande.
At the same time, investor access is being broadened. The euro and the yen are increasingly popular currencies for optimising funding costs, and index inclusion has also led to more total return swap activity, Coalition Greenwich said.
Historically manual trading has been adapting to international demand, with MarketAxess offering e-trading for government bonds in June.
READ MORE: Traders welcome India’s bond e-trading evolution as regulator shows teeth
Regulation is adapting too, with market regulator the Securities and Exchange Board of India (SEBI) making headlines with its trading ban on and fine for Jane Street following an investigation into the market maker’s cash and futures market operations.
Corporates are now more likely to look to private credit when raising capital, particularly as international investors are keen to access yield opportunities in India. Private debt funds in the country have gone from holding US$0.7 to US$17.8 billion in assets under management between 2010 and 2023, making private credit the fastest growing alternative investment in the region.
This growth also provides an opportunity for related products to be launched, including deal-contingent swaps and options.
“With its unparalleled growth momentum and deepening market infrastructure, India outpaces global peers, presenting a compelling opportunity for banks to capitalise on its favourable macro trends and evolving market landscape,” the report’s authors concluded.
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