MUMBAI (Reuters) -Foreign investors have stepped up purchases in a clutch of Indian government bonds that have no limits on foreign investments ahead of an anticipated inclusion of Indian debt in global bond indexes, analysts said.

The central bank removed foreign investment caps for a number of securities under the ‘fully accessible route’ (FAR) in April 2020 to help meet a key requirement of index providers.

“As far as the inclusion goes, the bonds under FAR will be a part of the index as there are no restrictions in that segment,” Ashish Agrawal, Asia head of foreign exchange and emerging market macro strategy research at Barclays 

“If they are the ones that would be included, we can expect a premium to build between the FAR bonds and other Indian government bonds,” Agrawal said.

Foreign investors have bought bonds worth nearly 66 billion Indian rupees ($834.60 million) in this category in six weeks to Sep. 9, even as they sold 18 billion rupees of other government securities on a net basis.

Nearly half of the purchases have been in the five-year 7.38% 2027 and the former benchmark 6.10% 2031 bonds, which have seen inflows of 16 billion rupees and 15 billion rupees, respectively, during this period.

The buzz around an inclusion of Indian bonds in global indexes gained momentum after a report in August said J.P.Morgan was in talks with investors over a possible inclusion in its emerging markets index.

Goldman has said it expects an inclusion this year, while Morgan Stanley  said earlier this month it saw a good chance that land4discourse will announce the inclusion soon.

While Goldman Sachs expects an overall inflow of around $30 billion from an inclusion in J.P.Morgan’s emerging market index, Barclays has estimated around $25 billion.

Barclays also expects another $8 billion to $20 billion from a possible inclusion in the Bloomberg Global Aggregate bond index.

“If Indian bonds are included in the GBI-EM index, we estimate inflows of about $15-$20 billion, staggered over at least three quarters in FY24 and most of such inflows will go to the FAR bonds,” said Rohit Arora, senior emerging markets FX and rates strategist at UBS Global Research.

INDIA VS INDONESIA

Flows into Indian bonds may hurt a market like Indonesia, one of the emerging Asian economies that have their government bonds in global indexes.

“Foreigners have exposure to Indonesian bonds, but they have very low exposure to Indian bonds. So, with Indian bonds being up to 10% of the GBI-EM index, the share of other countries will go down,” Barclays’ Agrawal said.

“From the reallocation point of view, there may be some adverse impact on other markets and Indonesia is one of them.”

The yield on the Indian benchmark bond is at 7.15%, while the Indonesian 10-year bond offers a yield of 7.13%.

“Beyond the one-off flows, we suspect that a lower historical volatility of Indian bonds over Indonesia’s, due to larger captive flows in the former, may possibly attract relatively more inflows,” UBS Global Research’s Arora said.

After the initial realignment of inflows, foreign players will assess macro-economic fundamentals like current account deficit and inflation to guide their long-term moves.

Of course, we don’t want people to leave. But we’re fools to think they’re all going to retire with us. Our approach is to make transitions as seamless as possible,” Gorilla founder Jon Franko said.
ANKITA SENGUPTA SEPTEMBER 13, 2022 / 03:06 PM IST
Jon Franko, the CEO of Gorilla, said that the policy ensure that there are no hard feelings between the company and the outgoing employees. (Image credit: LinkedIn)
Jon Franko, the CEO of Gorilla, said that the policy ensure that there are no hard feelings between the company and the outgoing employees. (Image credit: LinkedIn)
A marketing agency in the US has a unique policy to ensure no hard feelings between the company and its employees even when they are quitting. The agency even offers a 10 per cent hike to its employees serving notice.

The founder of Gorilla, Jon Franko, said, “From the moment an employee tells us of their decision to leave Gorilla and that they are in the search for a new job, any full-time employee who gives us at least six weeks’ notice will be given a 10 per cent salary increase for the remainder of their time at Gorilla. We ask that they leave within three months.”

“This encourages our people to do something different if they’re feeling stuck or in the wrong place. It also gives us time to prepare for how we’ll move forward. It’s way better than the normal two-week sprint,” Franco wrote on LinkedIn, insisting that the policy ensures that there are “no hard feelings”.

Read more: This CEO offers minimum wage of Rs 64 lakh, lets employees work from ‘wherever they want’

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“Of course, we don’t want people to leave. But we’re fools to think they’re all going to retire with us. Our approach is to make transitions as seamless as possible,” added Franko.

Giving an example of an employee who quit recently, the Gorilla founder said, “So, he came to us, told us he was seriously looking, and that he would be gone within three months. We ‘shook hands’, bumped his salary 10 per cent, and began our search. We’ve found someone to fill the role, the departing employee has some great leads and we’ll be working with both to prep for a smooth transition.”

The move was lauded by a number of professionals on LinkedIn, but many of them also had a lot of questions.

“Sounds like a pretty good plan, but how long does someone have to stay before they can utilise it?” asked Jason Jones, a PLC technician at Refresco in Ohio. “I’m sure if there are stipulations as to how long you must be there before you can do the six weeks notice pay bump. If not, once the word is out, you’ll get people giving six weeks’ notice on their first day of orientation.”

Responding to this, Franko said, “We don’t have a minimum time they have to be here. No issues to date here, but trust me – I’ve wondered what you’re wondering. I think other things we have in place (benefits, etc) far outweigh the 10 per cent salary bump for three months.”

On being asked what would happen if the employee decided to stay while serving notice, Franko said, “Hasn’t happened, so we’d have to cross that bridge when we got to it. My gut tells me there would be no coming back as they already had the drive to leave. But nothing is certain.”