A new roadmap to deepen the UK-India capital markets link

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A new roadmap to deepen the UK-India capital markets link
City of London Corporation Policy Chair Catherine McGuinness released a set of vital recommendations that would help fund India’s infrastructure investment needs and enhance its journey to a low carbon economy.Courtesy: Reuters

The City of London Corporation led UK-India Capital Markets Working Group has released its first set of recommendations on bolstering India’s corporate bond market to facilitate its growth and climate action plans.

A new report released this week calls for the development of a deep, liquid corporate bond market in India to fund the country's large infrastructure investment needs and its transition to a low carbon economy.

‘Unleashing the potential of the Indian Debt Capital Markets’ is the first report by the City of London Corporation led UK-India Capital Markets Working Group, which emerged from the India-UK Economic Financial Dialogue last year. City of London Corporation Policy Chair Catherine McGuinness, who launched the report during a virtual visit to India this week, said the recommendations will enhance India’s economic growth plans and journey to a low carbon economy.

Low carbon journey

“These recommendations would help fund India’s infrastructure investment needs and enhance its journey to a low carbon economy,” said McGuinness.

“Growing liquidity, accessing capital at reasonable cost, developing the corporate bond market, and adopting global best practice are all part of that plan. India's capital markets have enormous potential to attract capital, and the UK provides access to a large and diversified global capital pool, as shown by the successful issuance of Masala bonds in London,” she said, adding that the City of London would be exploring the next steps in the process with government and industry figures.

The report, put together in partnership with law firm DLA Piper, provides 15 key recommendations to increase the depth of the bond market in India as well as making it easier for Indian companies to issue bonds overseas.

“Robust capital markets, including the corporate bond market, are essential for reviving economic growth, in India and worldwide. The ability to raise equity is a crucial building block for a vibrant economy, and an important source of funding for business. As we look to kickstart a strong economic recovery, private capital has a critical role to play in helping us ‘build back better’, especially given the huge fiscal challenges resulting from Covid-19,” says McGuinness in her Foreword to the report.

“Huge amounts of capital are moving, and search for yield means more interest in high growth markets such as India, as evidenced by the continued growth in foreign investment,” she notes.

Post-pandemic world

The recommendations cover improving the efficiency of the primary markets, deepening liquidity in secondary markets, developing the ecosystem of products, and targeted tax, regulatory and reporting interventions to help address issues faced by issuers and investors in accessing domestic and international debt capital markets.

In recent years, we’ve seen how public markets channel international investment into India’s modern infrastructure, build sustainable energy capacity, and support internationalisation of the rupee. We look forward to the report advancing practical policy recommendations in support of the upcoming India-UK Financial Markets Dialogue.
- Shrey Kohli, Director, Head of Debt Capital Markets, London Stock Exchange

Ananth Narayan, Associate Professor at the S.P. Jain Institute of Management and Research and India Co-Chair of the City of London Corporation India-UK Capital Markets Working Group, said: “The wide-ranging recommendations span areas such as primary issuances, secondary markets, taxation, regulations, product and market infrastructure, and ESG [Environmental, Social, and Governance].

“While much progress has been made over the years in each of these areas, we still have miles to go – and the prize of sustainable growth is worth any and all effort."

The report is designed as a roadmap for deepening the domestic and offshore corporate bond market for India in a post-pandemic world, as well as transforming it into a competitive source of financing for issuers, and an attractive investment for a wide range of investors.

The London Stock Exchange Group offices are seen in the City of London. Public markets channel international investment into India’s modern infrastructure, build sustainable energy capacity, and support internationalisation of the rupee.
The London Stock Exchange Group offices are seen in the City of London. Public markets channel international investment into India’s modern infrastructure, build sustainable energy capacity, and support internationalisation of the rupee.Courtesy: Reuters

Financial Markets Dialogue

“Well functioning public markets underpin growth, innovation, job creation and the transition to a low carbon economy,” said Shrey Kohli, Director, Head of Debt Capital Markets, London Stock Exchange.

"In recent years, we’ve seen how public markets channel international investment into India’s modern infrastructure, build sustainable energy capacity, and support internationalisation of the rupee. We look forward to the report advancing practical policy recommendations in support of the upcoming India-UK Financial Markets Dialogue,” he said.

“Each member of the Working Group and the institutions which they represent have brought to the report their expert insights into how the offshore and onshore debt capital markets in India could be further developed and supported,” added Joywin Mathew, Partner, Capital Markets, and UK Head of the India Practice at DLA Piper.

Capital market trends

The report follows publication earlier this year by the UK and Indian governments of an Enhanced Trade Partnership and India-UK Roadmap to 2030, which contained a range of objectives covering financial and professional services, including boosting cooperation in green finance to help drive forward clean, sustainable infrastructure projects in India.

The City of London Corporation India-UK Capital Markets Working Group (CMWG) has been established to assess and help address the market and policy barriers impeding the realisation of the potential for capital markets to finance India’s growth and development. The purpose of the CMWG is to examine trends in capital markets development and identify factors that will encourage the growth of a vibrant and resilient capital market in India.

This new report considers the issues that prevent the corporate bond markets in India from achieving scale, including those faced by market participants including issuers, insurance companies, pension funds, mutual funds and foreign investors from accessing debt capital domestically and internationally. It compares the market practices and regulatory approaches between India and other markets, including London, a leading international jurisdiction for global issuers and Indian corporates to access international debt capital and discusses learnings and innovations which will enable the growth of a robust and resilient debt capital markets ecosystem in India.

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