India’s inclusion in JP Morgan’s Global Bond Indices to see inflows of $25-40 bn

• JP Morgan includes Indian Government Bonds in EM Indices, effective from June 2024.
• Inclusion to see inflows of $25 bn over the 10 month period that will see gradual inclusion of Indian bonds into the indices.
• Rupee will become even more resilient thanks to this inclusion and local currency would become more stable.

India will finally be included in the global bond index. On Friday, JP Morgan said that India will be included in the GBI-EM Global index suite effective 28 June 2024. India is expected to reach a maximum weight of 10% in the GBI-EM Global Diversified Index.

Currently, 23 Indian Government Bonds with a combined notional value of $330 bn are index eligible. Inclusion of Indian Government Bonds will happen over a 10 month period, starting from June 2024 to March 2025. India can expect $25 bn passive inflows into India’s bonds over the 10 month period. What this will also ensure is heterogeneity in the investor base. A lot of diverse investors track these global bond indices. This will also mean more stability in India’s government bonds.

The government has been actively working to get India’s bonds included in the global indices. Finance Minister Nirmala Sitharaman in 2022 had said the government was working with entities to ensure that the issues were resolved to ensure inclusion. This will bring global investments in India’s debt market. So far, equities have seen a lot of interest from global investors but with this more capital flows will also go to the debt market.

In a note, JP Morgan said, “As per the index inclusion criteria, eligible instruments are required to have notional outstanding above $1 billion (equivalent) and at least 2.5 years remaining maturity. At the start of the inclusion on June 28, 2024, only FAR-designated IGBs with a maturity date after December 31, 2026, will be assessed for eligibility. Any new index-eligible FAR-designated IGBs issued during the phase-in period will also be included. Impact on GBI-EM GD yields and duration.”

Commenting on the development, Nilesh Shah, MD and CEO of Kotak Mahindra Asset Management Company, said: “India’s inclusion in the bond index is a step in the right direction. With the exclusion of Russia and troubles in China, the options for global debt investors have narrowed down. Hopefully rating agencies will respect investors’ view point and give up on their moody and poor standards. This inclusion will deepen the bond market in India.”

This also means that the rupee will be more stable and resilient against global tantrums as seen in 2013 and even 2022 after the Ukraine war.

According to economist Radhika Rao at DBS Global Research, “Demand amongst the benchmark investors was also reportedly high to include India in the index. Rising expectations of this move had supported INR bonds this week, leaving the 10Y yield steady even as UST rates climbed to a 16 year high. The outcome of the review by the FTSE Russell index is pending next. For now 23 government bonds with a combined notional value of $330bn are eligible. A final 10% weightage in the JPM index could draw $25-30bn into India after the inclusion is complete.”