India bonds: from specialist exposure to strategic allocation

India’s local-currency bond market is moving from a specialist exposure toward a strategic allocation because its high investment-grade yields, low correlation with developed-market rates, and improving accessibility offer income and diversification.

• India is Asia’s third-largest fixed-income market, with around US$2.75 trillion of outstanding debt, while fiscal-year growth is estimated at 6.5%–6.8%, supported by domestic demand, investment, infrastructure spending, demographics, and supply-chain integration.
• Over the past decade, Indian bonds showed low correlations with U.S. Treasuries at 0.23 and Global Treasuries at 0.37; over the 10 years to July 2026, local INR bonds correlated 0.24 with the Bloomberg Global Aggregate Index in INR terms and 0.40 in U.S. dollar terms, versus 0.56 for Indian U.S. dollar credit.
• Ten-year Indian government bond yields were around the high-6% to approximately 7% range, providing substantial carry from an investment-grade sovereign that had maintained investment-grade ratings from the major agencies for more than 17 years.
• Market access improved after the Fully Accessible Route was introduced in 2020, India entered the JPM GBI-EM Global Diversified Index in June 2024 and FTSE Russell’s EMGBI in September 2025, and tax reforms reduced frictions for eligible foreign investors.
• The investable market extends beyond sovereign bonds to around US$0.6 trillion of onshore INR credit across roughly 3,876 issuers, while possible inclusion in the Bloomberg Global Aggregate Index could generate reported inflows of US$27 billion by 2028; currency hedging can reduce volatility but also lowers yield.

Takeaway: Investors should consider India as a broader fixed-income allocation, but implementation requires active decisions on duration, curve positioning, credit selection, liquidity, settlement, local expertise, and currency exposure, with inflation, capital flows, oil prices, and geopolitics remaining key risks.