India’s bond market is entering a new phase of optimism, buoyed by a rare confluence of macroeconomic tailwinds. According to Chirag Doshi, CIO–Fixed Income at LGT Wealth India, the recent sovereign credit rating upgrade by S&P Global, anticipated inclusion of Indian bonds in global indices, and the government’s push for GST reform are collectively creating a “constructive backdrop” for both government securities and high-grade corporate bonds.
Doshi believes these developments will lower yields, attract deeper foreign participation, and improve credit dynamics across the financial ecosystem. His outlook comes at a time when India’s 10-year benchmark yield has softened by nearly 7 basis points post-upgrade, reflecting improved investor confidence and a recalibration of sovereign risk premium.
🧭 Sovereign Rating Upgrade: A Game-Changer for Bond Sentiment
On August 14, 2025, S&P Global Ratings upgraded India’s long-term sovereign credit rating from BBB– to BBB, marking the first such upgrade in 18 years. The move was driven by India’s resilient macro fundamentals, fiscal discipline, and reform momentum.
| Rating Agency | Previous Rating | New Rating | Last Upgrade Year | Impact on Bond Market |
|---|---|---|---|---|
| S&P Global | BBB– | BBB | 2007 | Lower yields, higher inflows |
| Moody’s | Baa3 | Unchanged | 2017 | Neutral |
| Fitch | BBB– | Unchanged | 2006 | Awaiting review |
Doshi noted that the upgrade has already triggered a dip in yields and could pave the way for broader foreign participation in Indian debt instruments. “The market priced in a lower sovereign risk premium almost immediately,” he said.
🌍 Index Inclusion: Foreign Flows Set to Surge
India’s sovereign bonds are expected to be included in major global indices such as the JPMorgan GBI-EM and Bloomberg Global Aggregate Index by early FY27. This inclusion could bring in $25–30 billion in passive inflows over the next 18–24 months.
| Index Name | Inclusion Timeline | Estimated Inflows ($ bn) | Key Conditions Met |
|---|---|---|---|
| JPMorgan GBI-EM | Q1 FY27 | $20–25 | FX settlement, liquidity |
| Bloomberg Global Aggregate | Q2 FY27 | $5–7 | Regulatory alignment |
Doshi emphasized that index flows will not only deepen the bond market but also improve pricing efficiency and reduce volatility. “We expect a structural shift in demand for G-Secs and AAA-rated corporate bonds,” he added.
🧾 GST Reform: Fiscal Clarity and Inflation Cushion
The government’s second-generation GST reform, announced during Prime Minister Narendra Modi’s Independence Day speech, proposes a streamlined two-tier structure—5% and 18%—with a higher 40% rate reserved for sin goods. This replaces the current 12% and 28% slabs, potentially lowering the cost of consumer items and improving fiscal transparency.
| GST Slab | Current Rate | Proposed Rate | Impact on Inflation | Fiscal Implication |
|---|---|---|---|---|
| Essentials | 12% | 5% | Deflationary | Revenue neutral |
| Standard Goods | 28% | 18% | Mildly deflationary | Consumption boost |
| Sin Goods | 28% + cess | 40% flat | Inflationary | Revenue positive |
Doshi believes the reform will support bond markets by anchoring inflation expectations and reducing fiscal uncertainty. “Lower inflation and better tax buoyancy create room for rate cuts and improved credit spreads,” he said.
📉 Yield Movement and Credit Dynamics
Following the sovereign upgrade, India’s 10-year benchmark yield dropped from 7.18% to 7.11%, before retracing slightly. Doshi expects yields to remain range-bound in the short term, with a downward bias if inflation remains under control.
| Bond Type | Pre-Upgrade Yield | Post-Upgrade Yield | Outlook (FY26) |
|---|---|---|---|
| 10-Year G-Sec | 7.18% | 7.11% | 6.90–7.10% |
| AAA Corporate | 7.45% | 7.38% | 7.25–7.40% |
| PSU Bonds | 7.60% | 7.52% | Stable |
Credit spreads are expected to compress further, especially for top-tier NBFCs and infrastructure financiers. Doshi highlighted that banks and NBFCs with strong balance sheets will be early beneficiaries of the improved credit environment.
🏦 Sectoral Beneficiaries: Who Gains from the Bond Tailwinds
Doshi identified three key sectors that stand to benefit from the current bond market backdrop:
| Sector | Benefit Mechanism | Key Players |
|---|---|---|
| Banking | Lower funding cost, better spreads | SBI, ICICI Bank, HDFC Bank |
| NBFCs | Easier access to debt capital | Bajaj Finance, L&T Finance |
| Infrastructure Finance | Long-tenure funding availability | PFC, REC, IRFC |
He also noted that insurance companies and pension funds will benefit from better yield curves and improved mark-to-market valuations.
🧠 Expert Commentary: Constructive but Cautious
While the outlook is positive, Doshi cautioned against overexuberance. He advised investors to focus on duration management and credit quality, especially in the face of global rate volatility and geopolitical risks.
“We are constructive on the bond market, but selective. Duration calls must be aligned with inflation trends and fiscal signals,” he said.
He also recommended staggered allocations to G-Secs, SDLs, and AAA corporate bonds for retail and HNI investors.
📊 LGT Wealth India’s Fixed Income Strategy
LGT Wealth India has increased its allocation to sovereign and quasi-sovereign bonds in its fixed income portfolios. The firm is also exploring structured debt and ESG-linked bonds for institutional clients.
| Portfolio Type | Allocation to Bonds (%) | Focus Areas |
|---|---|---|
| Retail PMS | 45% | G-Secs, SDLs, AAA Corporates |
| HNI Advisory | 55% | Duration play, tax efficiency |
| Institutional Mandates | 60% | ESG bonds, infra-linked debt |
Doshi confirmed that LGT Wealth is also evaluating offshore bond opportunities in Asia and the Middle East, especially in sovereign and green debt.
📌 Conclusion
India’s bond market is riding a wave of optimism, powered by the sovereign rating upgrade, anticipated index flows, and GST reform. Chirag Doshi’s insights underscore the structural strength of the current environment, with implications for yields, credit spreads, and foreign participation.
As fiscal clarity improves and inflation remains contained, the bond market is poised to become a key pillar of India’s financial architecture. For investors, the message is clear: the time to engage with fixed income is now—but with discipline and strategic foresight.
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Disclaimer: This article is based on publicly available financial commentary and market data as of August 21, 2025. It is intended for informational purposes only and does not constitute investment advice.
