Inclusion in JP Morgan index will boost foreign fund flows into India

It is likely to result in a lower cost of borrowing for Indian companies

By HP Ranina/NRI Problems

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The Reserve Bank of India. The incremental buying of Indian G-Secs by global funds would lead to a fall in yields. — File photo
The Reserve Bank of India. The incremental buying of Indian G-Secs by global funds would lead to a fall in yields. — File photo

Published: Tue 10 Oct 2023, 4:58 PM

Last updated: Tue 10 Oct 2023, 4:59 PM

Question: There have been press reports that JP Morgan has included Indian government securities (G-Secs) in its emerging market bond index. How will this benefit the Indian economy in the short term?

ANSWER: The global financial services major JP Morgan has decided to include Indian G-Secs for the first time in its global bond index along with G-Secs issued by China and Indonesia. This will be done from June 28, 2024. The weightage of Indian G-Secs would rise from one per cent to 10 per cent over the ten months until March 2025. As the index is widely followed by global bond fund managers, it is estimated that between $40-45 billion funds may flow into India during this ten-month period. According to bond market players, the incremental buying of Indian G-Secs by global funds would lead to a fall in yields. This in turn would bring down the Indian Government’s cost of borrowing. Since gild yields are a benchmark for yields on corporate bonds, it may also result in a lower cost of borrowing for Indian companies. The higher foreign fund flow into India would have a positive impact on the rupee which may strengthen against other foreign currencies. Further, it could work as a cushion in the foreign exchange market by reigning in the volatility of the Indian currency.


Question: Venture capital funds are reported to be investing lower amounts in start-ups globally. Will this have an impact on start-ups in India which will adversely affect young entrepreneurs?

ANSWER: According to an international advisory and research firm, 429 Indian companies have raised $127 billion from venture capital funds. India ranks fourth after the United States, China and Great Britain, in terms of attracting venture capital funds. According to a study undertaken by this firm, India has start-ups with 50 per cent or more of their customers investing from foreign countries. Indian start-ups which tailor their products and services to global markets are attracting the maximum investment. Start-ups based in large economies scale at a higher rate when they focus on their domestic market. This is happening in India, where B2C start-ups have achieved unicorn status. The local connectedness index measures the size, density and quality of a start-up’s local network. Scaleup success rate increases with global connectedness. Ecosystems which are more connected to top level global ecosystems, such as Silicon Valley, find their start-ups going global at a much higher rate. It has been suggested that entrepreneurs who want to improve their chances of scaling should offer stock options to all their employees as that ensures a higher success rate. The United States, which is at the top for attracting investment from venture capital companies, has attracted $1.4 trillion which have been invested in 7,184 start-ups.


H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.
H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.

Question: My younger brother in India joined an IT company nine months back and is planning to shift to another IT company next month. However, his present company has in his letter of employment inserted a clause whereby he cannot leave for two years from the date of employment. What is the legal status?

ANSWER: Your brother is ethically bound to comply with the terms of his contract of employment with the present employer. However, if he chooses to contravene the contractual obligation, the present employer would find it difficult to enforce the contract in a court of law because there are judgments which have held that an employee has the freedom to join a competitor and cannot be restrained from doing so. This is on the ground that an agreement which is in restraint of trade violates the provisions of the Indian Contract Act, 1872. However, if any compensation is payable under the contract for resigning during the period stipulated, such amount can be claimed by the employer. Of course, the employer would initiate legal proceedings against your brother and legal costs would have to be borne which may be substantial as the Court proceedings may go on for several years. To avoid these expenses, it would be best for your brother to come to a settlement before joining another company.

H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.



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