Almost a year later The London Stock Exchange welcomed Housing Development Finance Corporation (HDFC) into the UK stock market. They’ve raised Rs.3000 crore because of it.
NTPC also raised Rs.2000 crore from bonds dedicated to supporting alternate power sources and solutions.
This is just two of the bonds entirely worth 1 million USD the Indian Prime Minister Narendra Modi issued in the UK last year.
So, What Is A Masala Bond?
Before this concept, it was only common
for companies with foreign currency earnings to delve into international stock markets and diversify their portfolio of investors.
Foreign investors meant profits from stocks being in a different currency so; there was the conversion charge as well as a large part of your stock now riding on the economy of another country.
This meant that if the price of the INR fell, companies would have to put in more rupees to meet say, the same price in Euros.
It’s a loss-making strategy to depend on too many variables, and every company recognized that, so it was a rarely opted for choice for Indian companies.
It was only common for companies with foreign currency earnings to delve into international stock markets and diversify their portfolio of investors.
These bonds bridge the gap between the currency exchanges.
With this, stock buyers buy in INR, no matter where they’re buying from. It works out cheaper for investors as well as Indian companies.
With the stock dependent of the value of INR alone, business is steadier and can flourish under an expanded buying market.
Benefits of Bonds
They’re Rupee Denominated – Since most foreign investments come in a different currency, a stock will depend on the currency fluctuation of other countries. This is an added risk.
With bonds, investors pitch in using INR and help make our currency an international one.
- Big Returns, For a Lesser Price – For a foreign investor to buy stocks in INR works out best; for both the company and the investor.
- Companies like NTPC, HDFC, Indian Railway Finance Corporation (IRFC), Adani Transmission, Shriram Transport Finance have all begun to put out international stocks and are making big bucks from it.
- Additionally, it’s about 200 basis points lower in cost for companies when foreign investors buy their Masala bonds.
- Safe and Secure – The RBI issues Masala Bonds and only allows foreign persons who have cleared the Financial Action Task Force’s examination to decide that the investor is not of malicious intent like an international money launder and a beneficiary for any terrorist organization.
This keeps the company-investor relationship a close one, even if they’re miles apart.
How Does It Benefit India as A Nation?
Masala Bonds help in roping in international investors and divert all eyes to the Indian stock market.
This sort of attention compels advice and feedback that is useful to companies so that they may increase their market value and the investor’s capital
gain.
If other nations invest in the long-term stability of the Indian Rupee, both intellectually and financially, it helps boost INR to international standards
and increase in value.
It is in India’s best interest to spread its stocks out to the world, so they can find value and give value to our economy and helps us grow into a
superpower.
Sources:
http://www.thehindubusinessline.com/opinion/columns/masala-bonds/article7194362.ece
http://economictimes.indiatimes.com/markets/bonds/http://www.thehindu.com/business/https://advisesure.com/blog/what-are-masala-bonds-and-its-benefitshttp://economictimes.indiatimes.com/markets/bonds/who-invested-in-hdfc-masala-bonds/articleshow/53402954.cmshttp://indiafa.org/masala-bonds-an-innovative-financial-instrument/https://www.quora.com/How-masala-bonds-works-and-what-are-its-returns
http://www.thehindu.com/business/Industry/masala-bonds-the-flavour-of-the-moment/article7930287.ece
LSI Keywords: bonds, stock market, investor’s capital gain, investors, currency, market value of the rupee, stocks, Indian Stock Market
