The financial year 2020-21 saw India register the worst economic decline in 40 years. A contraction of almost 8% occurred which sent alarm bells ringing. However, amidst the chaos, Foreign Direct Investment (FDI) grew by 10% year-on-year (YoY), becoming the beacon of hope in a year when the pandemic called the shots.
FDI reached $81.7 in the last fiscal, buoyed by reforms in policy and ease of doing business in the country. Despite the second wave of COVID-19 that brought the nation to its knees, foreign investors remained optimistic, hedging their bets on a strong rebound by the Indian economy.
Portfolio managers are looking at long term growth prospects. GW&K Investment Management LLC said that even with the second wave, growth would be strong this year and the long-term outlook is positive. Sustainable investing is one sector which is expected to remain headstrong and perform quite well. Green bonds offered by firms like ReNew Power, Adani SBI and Continuim Energy are expected to do very well.
The renewable energy (RE)sector has seen strong performance in the last fiscal as India races to meet its COP 21 targets. Despite a sluggish year for RE, it accounted for 7.7GW of the total power generation capacity of 12.1GW added. This comes in the backdrop of new projects and successful green bonds issued by RE companies and banks.
On March 31, 2021, ReNew Power announced the successful pricing of $585 million green bonds due in 2028. Proceeds from the bonds will be used to repay outstanding debts and expand capacity. Adani and SBI also issued similar bonds in recent years – the former planning to raise $12 billion through green bonds and the latter raising a total of $800 million till date.
Green bonds have risen in popularity among domestic and global investors and the Reserve Bank of India (RBI) acknowledged this, saying that even institutions like the World Bank are getting involved. The viability of green bonds issued by organizations like ReNew Power, Adani and SBI and the rising preference of environmental, social and governance (ESG) by investors will ensure their continuing support.
As of 2021, India has the second-largest emerging green bond market after China. Despite the innovations in the field since 2015 (see Figure 1), the Indian green bond market hasn’t been able to diversify itself much in terms of assets, which remain focused on renewable energy projects.Since 2018, Green bonds have constituted only 0.7 per cent of all the bonds issued in India. Bank lending to the non-conventional energy constituted about 7.9 per cent of outstanding bank credit to the power sector as of March 2020.
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