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India Sovereign Bond ETF achieves strong rupee performance

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Specialist emerging markets asset management business, ZyFin Funds, has revealed that its LAM Sun Global ZyFin India Sovereign Bond UCITS ETF – USD has returned 5.22 per cent in Indian rupees for its first seven months. 

The Fund is a UCITS compliant ETF that aims to track the performance of the benchmark, the ZyFin India Sovereign Owned Enterprise Bond Index. The firm writes that the objective is to provide an exposure to high quality fixed-income securities issued by Indian Sovereign Owned Enterprises (SOEs). SOEs are Indian companies or enterprises which are majority owned (51 per cent or more) by the Central Government of India and include banks and non-banking financial institutions.
 
The Index tracks the total return performance of relevant corporate bonds issued by SOEs. The current average maturity of the AAA rated (local Indian Rating of INR obligations) portfolio is 7.96 years and with a current average modified duration of around 5.48 years.
 
Since inception, the fund has a tracking error of 0.09 per cent, which the firm says is low compared to many global peers.
 
In terms of India, the firm writes that the direct impact of Brexit may be more muted for the rest of the world, though there is a risk that financial turbulence has a real economy impact, with the market likely to begin to focus more acutely on other upcoming external events such as the US elections.
 
“India is much better positioned relatively than its emerging market peers to handle this increased volatility due to its stronger growth prospects – India is projected to be the fastest growing economy for the next two years by the IMF – and steep improvement in macros – thanks to a host of proactive measures taken by the Government and India’s Central bank – Reserve Bank of India (RBI).
 
“The prolonged weakness in commodity prices is positive for India, which is a net importer of commodities, and would further improve its Current Account Deficit (CAD) which is already down to -0.1 per cent. The improved Forex reserves, at USD363 billion, should be more than sufficient to tackle the short term volatility in currency markets and any sentimental outflows from India’s equity markets.
 
“RBI will continue to ease liquidity and is likely to remain dovish with inflation under control assisted by good monsoon trends. Brexit uncertainty would have a deflationary effect and invite stimulatory actions (more liquidity) from leading global central banks. This would help RBI to continue cutting policy rates. As global yields hit new lows, the Indian sovereign and quasi sovereign bonds continue to be attractive given the increasing yield differentials (now at 600 bps for US treasuries) and a stable currency. In past global crisis like the taper tantrum (June 2013) or the global financial crisis (2007-08), Indian sovereign yields rose sharply due to global risk aversion. Post the Brexit vote, ten year yields are in fact lower by around 20 bps, reinforcing the stable macros of India.”
 

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