Two investment houses have unveiled plans to offer international investors access to Indian public sector corporate bonds.

The UK's Sun Global Investments has teamed up with India's ZyFin to launch the world’s first Indian fixed income exchange-traded fund on the London Stock Exchange.

The LAM Sun Global ZyFin India Sovereign Enterprise Bond UCITS ETF will be listed on the 19 November. It will offer international investors exposure to a basket of Indian public sector corporate bonds with an average duration of over 10 years. These companies, although partly state owned, yield higher than an Indian sovereign bond at around 7 per cent, Sun Global and ZyFin said in a joint statement.

Indian sovereign owned enterprises (SOEs) are corporations of national interest which are 51 per cent owned or more by the government. The country's capital markets have traditionally been difficult to access for foreigners so the inclusion of foreign portfolio investments such as this one is an important step forward in broadening the bond market's investor base. 

“This venture shows the versatility, creativity and flexibility of the financial sector in London and the investment opportunities available as a result of the rising economic growth in India,” said Mihir Kapadia, chief executive at Sun Global Investments.

“The listing of this fund reflects our view that Indian nominal yields are among the highest in the world. With India expected to overtake China next year as the world’s fastest growing economy, we are confident that new investments innovations such as ours will help reinforce its growth trajectory.”

The UCITS-compliant fund will give investors the opportunity to invest in difficult-to-access but well-researched AAA rated Indian companies. It will be Europe’s first physically replicating Indian ETF backed by real underlying securities as opposed to notional securities or derivatives.

The announcement coincides with the arrival of Indian Prime Minister Narendra Modi in London for a three-day visit to strengthen financial ties between the UK and India. Modi, who was elected to power in May last year, arrives at a time of cautious yet encouraging optimism over his reform-led government.

“This is the first time global investors will have access to AAA rated government owned Indian companies through an exchange traded fund and with the Indian government keen to stimulate outside investment, this is a very exciting time to be investing in the country. India’s GDP has doubled in eight years from $1 trillion in 2007 to $2 trillion in 2015 and the IMF forecasts GDP growth of 7.3 per cent,” said Sanjay Sachdev, executive chairman at ZyFin. 

“The most important rationale for investing in India is the offer of growth in a slowing world and even without reforms, it has been growing at a resilient pace in the last few years,” Sunil Asnani, manager of the Matthews India Fund, a portfolio in the stable run by Matthews Asia, said, in a commentary linked to the Modi visit.

"Mr Modi, the face of the party in power, has a good track record in Gujarat, where the state grew by high single digits or low double digits growth rate for almost ten years. So, with a good track record and a good credible promise for governance and growth, the country elected him to be prime minister and there are a lot of expectations that he can deliver everything in a short period of time. I think it is unrealistic, first of all, to feel that he will perform miracles, and on top of that, if you look at the capacity for him to make reforms, it’s also limited.

"He is doing a decent job at running an efficient and honest government. As far as making new laws, like passing a land bill, which will make it easier to buy and sell land or the goods and services taxes, which will reduce the touch points any business has with the government, those bills require support in the upper house or the parliament, and also require support from the state legislators, which he doesn’t have at the moment. It may come in the next few years, but until then it might be an uphill task," Asnani added in the commentary.