On Friday, NSE Indices Ltd, a subsidiary of NSE, announced the release of the first municipal bond index in India. The Nifty India Municipal Bond Index will monitor the progress of municipal bonds issued by municipal corporations in India, with varying maturities and a credit rating of investment grade, as per NSE Indices’ statement.
The launch of this index took place during a workshop on Municipal Debt Securities organized by the Securities and Exchange Board of India (SEBI) in Bengaluru.
At present, the newly launched Nifty India Municipal Bond Index includes 28 municipal bonds issued by 10 different issuers, all of which have a credit rating in the AA category. The bonds selected for the index are assigned weights based on their outstanding amount.
In recent years, the Indian municipal bond market has experienced a resurgence in issuances. This is attributed to the introduction of Sebi’s Issue and Listing of Municipal Debt Securities Regulations in 2015 and the renewed focus on municipal finance by policymakers. As a result, there has been an increased interest in investing in municipal bonds in India, and the launch of this new index will provide investors with a benchmark to track the performance of these bonds.
The selection of municipal bonds for the Nifty India Municipal Bond Index is based on certain criteria such as the issuer’s credit rating, the bond’s maturity, and its investment grade status. By including bonds from various issuers and maturities, the index aims to provide diversified exposure to the Indian municipal bond market. Investors can use this index to evaluate the performance of their municipal bond portfolio and to make informed investment decisions based on market trends.
The process of raising funds through capital markets provides a financial incentive for municipal corporations to undertake new projects and improve civic infrastructure. In doing so, it encourages them to develop financial discipline and prioritize good governance practices.
According to Mukesh Agarwal, CEO of NSE Indices, the municipal bond market has the potential to play a pivotal role in financing the borrowing requirements of various municipal corporations in India. Proceeds from bonds issued by these corporations can be utilized to expand essential municipal services through growth-driven infrastructure projects, thereby helping to bridge the urban infrastructure financing gap in India.
Overall, the availability of funding through capital markets and the use of municipal bonds can provide significant benefits to municipalities, such as the ability to finance infrastructure projects and improve the quality of life for residents. Additionally, these bonds can offer an attractive investment opportunity for investors seeking diversification and higher yields, while contributing to the overall growth and development of the Indian economy.
The Nifty India Municipal Bond Index uses the total return methodology, which includes both price return and coupon return, to compute the index value. The base date for the index is January 1, 2021, and the base value is set at 1,000. The index will undergo quarterly reviews to ensure its relevance and accuracy in tracking the performance of municipal bonds issued by Indian municipal corporations.