JPMorgan announced the inclusion of Indian government bonds in its widely followed emerging market debt index. This inclusion is expected to result in billions of dollars flowing into the world’s fifth-largest economy.
According to JPMorgan, India’s local bonds will be included in the Government Bond Index-Emerging Markets (GBI-EM) index and the index suite, which is benchmarked by approximately $236 billion in global funds.
The securities will be added to the index provider’s database on June 28, 2024. According to a statement, India will have a maximum weight of 10% on the index.
Churchil Bhatt, Executive Vice President & Debt Fund Manager, Kotak Mahindra Life Insurance Company Limited, said “After spending almost two years in watch list, India got included in JP Morgan’s flagship Government Bond Index – Emerging Market (GBI EM). This phased inclusion will begin from June 2024 onwards and will be completed in March 2025, where India would account for 10% of the index weight. This move is expected to garner approximately US$25 billion of inflows into Indian Government Bond markets. In the longer run, this could trigger inclusion from other similar indexes, such as Bloomberg Global Aggregate index which may bring about further flows into the market. The announcement to include India’s bonds in the GBI-EM index will support both India bonds and local currency. We expect 10-year Government bond yields to settle comfortably below 7% as we inch closer to the Index inclusion date.”
According to JPMorgan, 23 Indian Government Bonds (IGBs) with a total notional value of $330 billion are eligible. All are considered “fully accessible” to non-residents.
“India’s weight is expected to reach the maximum weight threshold of 10% in the GBI-EM Global Diversified, and approximately 8.7% in the GBI-EM Global index,” JPMorgan said.
JPMorgan noted that inclusion will begin on June 28, 2024, and will last 10 months, with 1% increments on its index weighting, until India reaches the maximum weighting of 10%.
Due to increased borrowing, India’s fiscal imbalance has been elevated since COVID-19. This event will relieve borrowing pressure because a big portion of the borrowing will be noticed via this channel, according to Kochar.
JPMorgan noted in March that support for index-eligible, high-yielding government bonds from India had grown to 60% in its survey, up from 50% the previous year.