Widely read:
For the first time ever, the government of India will issue bonds that will help finance environment-friendly projects in the country.
Known as sovereign green bonds, these will be up for auction to domestic and overseas investors today (January 25). Five per cent of the sale will be reserved for retail Indian investors.
Bonds worth Rs 8,000 crore will be up for sale - Rs 4,000 crore of bonds will mature in five years and the remaining in 10 years. It is part of the Indian government's plan to raise money through green bonds. The capital raised will help kickstart several green projects, including possibly cleaning the river Ganga.
What is the domestic market saying?
Judging by several reports, most domestic analysts seem excited for various reasons.
- They expect green bonds to offer a more or less similar rate of interest, known as yield. Usually, green bonds offer less interest rate than general bonds to encourage governments and private companies to raise capital for environment-friendly initiatives at a cheaper cost.
- Two, analysts feel public sector banks have shown a strong interest in green bonds. Additionally, insurance companies have been allowed to treat green bonds as part of their infrastructure investments, which could further fuel their interest in the environment-friendly securities.
- Three, that green bonds will be tradeable in the secondary market is music to the ears of other domestic institutional investors.
- Four, the Reserve Bank of India has lifted restrictions on overseas investments to acquire green bonds. Industry experts feel this move may attract foreign investors.
A view from the other side
There are a few experts who advise a wait-and-watch policy. Even though green bonds have gained traction worldwide, this is unchartered territory for Indian markets. Speaking to Bloomberg-Quint, an unnamed bank official said it is better to wait and see if there is sufficient demand for green bonds in the secondary market.
In addition, there is no mandate for banks, insurance companies and mutual fund houses to acquire green bonds, which might neuter domestic interest in green bonds. The lack of investor education and public awareness can be damning too.
Further, even though India's green bonds may not offer much premium, bank analysts and traders still expect the government to sell green bonds at a slightly lower yield than regular ones. This may dampen the mood among Indian investors. That the government is unlikely to offer any tax incentives is a double-whammy for local investors.
Also, despite the central bank lifting restrictions on foreign holdings, rupee depreciation may scare overseas investors, as per Bloomberg. Since the value of the Indian rupee has eroded by around 4 per recent in the last five years, their return on green bond investments can be impacted as well.
And even if there is a stronger-than-expected foreign investor interest in green bonds, it may act as a double-edged sword because that may push down the yield rates offered by sovereign green bonds (SGrB).
What you should do
Even though 5 per cent of the inaugural green bond sale is reserved for retail investors, we suggest you wait.
Wait, because it is a new investment, and one should see if and how the market for green bonds eventually evolves. A lack of tax incentives is another drawback. So is the fact that green bonds universally offer lower yields, at least until now.
Suggested read: What are sovereign green bonds?
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
For grievances: [email protected]
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
