New Delhi (TIP)- JPMorgan is to include Indian government bonds in its widely tracked emerging market debt index which may cause billions of dollars of inflows into India. As per reports, quoting JPMorgan, India’s local bonds will be included in the Government Bond Index-emerging markets (GBI-EM) index and the index suite, benchmarked by about $236 billion in global funds.
The inclusion of Indian bonds will start on June 28, 2024, and extend over 10 months with one per cent increments on its index weighting, as India is expected to reach the maximum weighting of 10 per cent, according to JPMorgan.
JPMorgan said 23 Indian Government Bonds (IGBs) with a combined notional value of $330 billion are eligible. All fall under the category of “fully accessible” for non-residents.
Experts hailed this decision of the inclusion of Indian bonds into the GBI-EM index as they pointed out that bond investors will have more options now for investments. It will also pave the way for the bond market to grow its roots in India. Moreover, it is also positive news for the domestic currency as it will lower India’s cost of funding and help India finance its fiscal and CAD (current account deficit).
Madhavi Arora, lead economist at Emkay Global Financial Services believes this will lower India’s risk premia and cost of funding, enhance the liquidity and ownership base of government securities (G-Secs) and help India finance its fiscal and CAD.
However, Arora added that this does not immediately pave the way for inclusion in the FTSE and Bloomberg indexes, which have more stringent conditions (FPI taxation/Euroclear). However, it could have a demonstration effect in the medium term as the lower-risk premia could trigger positive externalities.
“In the near term, we expect bond yields and the Indian rupee to reverse gains after the initial euphoria, tracking global markets. However, the trend will again reverse in favour of bonds by March 2024, with the 10-year yield coming off well below 7 per cent. For the second half of the current financial year (H2FY24), we see the USD-INR range at 82.25-84.25, with tactical RBI intervention keeping it in the middle of the EM (emerging market) Asia pack,” said Arora.
It may have a positive impact on the domestic stock market sentiment and boost FPI (foreign portfolio investor) inflows into India.