DWS writes that it is providing investors with access to the Indian rupee-denominated Indian government bond market with the launch of the Xtrackers India Government Bond UCITS ETF. The ETF is listed on the London Stock Exchange and on the Deutsche Börse.
Due to limited liquidity and accessibility, Indian government bonds are currently not included in flagship bond indices such as the Bloomberg Global-Aggregate index or the J.P. Morgan Government Bond – Emerging Markets Global Diversified index, the firm writes.
The economy of the world’s second most populous country is growing strongly, with real gross domestic product (GDP) increasing by 8.7 per cent in 2021, and the International Monetary Fund forecasting a rise of 7.4 per cent in 2022 and 6.1 per cent in 2023. The debt-to-GDP level has been relatively stable at around 70 per cent for the last decade, while the largest democracy in the world has never defaulted on its debt. In addition, being a net importer of energy, the Indian rupee is negatively correlated to energy prices, meaning a potentially higher resilience of Indian government bond exchange-rate adjusted returns during economic downturns.
The market size for securities issued by the Indian government is more than USD1 trillion as of August 2022. This ranks it between the corresponding sovereign debt markets of Canada and Spain. In the emerging markets local currency space, it is second only to China’s treasury market. The Xtrackers India Government Bond UCITS ETF has duration of around six years and an average credit rating of ‘BBB-‘ as of August 2022. The annual all-in fee (total expense ratio) is 0.38 per cent.
The new ETF aims to physically replicate the J.P. Morgan India Government Fully Accessible Route (FAR) Bond index. This index aims to track the performance of fixed-rate Indian rupee-denominated Indian government bonds that have been made eligible for investment to non-residents under the Fully Accessible Route (FAR). The FAR is a separate channel established by the Reserve Bank of India, in consultation with the government of India, through which eligible investors can invest in specified government securities without any investment ceiling. The instruments comprise FAR-eligible fixed-rate and zero-coupon bonds.
Nippon Life India Asset Management (Singapore) Pte. Ltd. has been appointed sub portfolio manager, providing portfolio management services for the Xtrackers India Government Bond UCITS ETF.
“DWS is continuously developing its range of ETFs in order to meet the ever-evolving needs of investors. With this new product we are giving our clients access to the attractive Indian bond market. Nippon Life India Asset Management brings its deep knowledge of the Indian fixed income market,” says Michael Mohr, Head of Product Specialists, Passive, at DWS.
“We are delighted to provide access to India’s growth story to DWS’s investor base through this differentiated product offering. Our long-term track record and deep understanding of the Indian capital market and ETF segment can be leveraged further through this opportunity. I believe such offerings with DWS can go a long way in attracting global allocations into India,” says Sundeep Sikka, Executive Director and CEO at Nippon Life India Asset Management.