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India’s Entry into JP Morgan Global Bond Indices: Unlocking a Potential Inflow of $25-40 Billion

JP Morgan global bond indices

On Friday, JP Morgan announced that India would be included in the GBI-EM Global Diversified bond Index suite effective 28 June 2024, reaching a maximum weight of 10%.

Currently, 23 Indian Government Bonds with a combined notional value of $330 billion are index eligible. From June 2024 to March 2025, Indian Government Bonds will be included in the index. Over the next 10 months, India can expect passive inflows of $25 billion into its bonds. Additionally, this will ensure heterogeneity in investor interest, as JP Morgan global bond index are followed by a wide range of investors. India’s government bond market will be more stable as a result.

Finance Minister Nirmala Sitharaman in 2022 said that the government was working with entities to resolve the issues related to inclusion of India’s bonds in global indices. This will bring global investment in India’s debt market. So far, equity has seen a lot of interest from global investors, but with this, more capital flows will be directed to the debt market.

According to JP Morgan, eligible instruments have a notional outstanding of more than $1 billion (equivalent) and a maturity date of at least 2.5 years. Inclusion will begin on June 28, 2024, and only FAR-designated IGBs with maturity dates after December 31, 2026 will be considered eligible. New index-eligible FAR-designated IGBs issued during the phase-in period will be included. Impact on GBI-EM GD yields and duration.

In response to the development, Nilesh Shah, MD and CEO of Kotak Mahindra Asset Management Company, commented: “India’s inclusion in the bond index is a welcome development. Due to the exclusion of Russia and China’s troubles, the options for investors in global debt have narrowed. Rating agencies need to respect investors’ views and stop being moody and poor. The inclusion of this component will deepen the Indian bond market.

Additionally, the rupee will be more resilient to global tantrums, such as those seen in 2013 and 2022 after the Ukraine war.

Per economist Radhika Rao of DBS Global Research, the demand among benchmark investors to add India to the index was high. This resulted in a rise in expectations and supported INR bonds throughout the week, maintaining a steady 10Y yield while UST rates rose to a 16-year high. The outcome of the FTSE Russell index review is still pending, but currently there are 23 eligible government bonds with a total notional value of $330bn. Once included, a final weightage of 10% in the JPM index could bring in approximately $25-30bn for India.

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