JPMorgan adds India government bonds to EM debt index

The much-awaited India bond inclusion in the JPMorgan emerging market debt index has been announced on Friday. The move is expected to deepen bond market in India and drive billions of dollars into the one of the fastest-growing major economies. The index provider said it would add domestic government debt securities to the JPMorgan Government Bond Index-Emerging Markets in a staggered manner -- 1 per cent weight per month-- over a 10-month period starting June 28, 2024 through March 31, 2025. 

With this, analysts said, enhanced foreign participation in the medium-to-long term could result in reduced yields on government bonds. That, in turn, may gradually reduce the yields on corporate bonds as well. The fresh move, Shantanu Bhargava of Waterfield Advisors said, could lead to reduction in cost of capital and cost of borrowing over the long-term and have a positive impact on rupee.

India, as per the statement, would have a maximum weight of 10 per cent on the GBI-EM Global Diversified index. JPMorgan noted GBI EM-Global Diversified index accounts for $213 billion of the estimated $236 billion benchmarked to the GBI-EM family of indices.

"India’s inclusion in bond index is a step in the right direction. With 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 bond market in India," said Nilesh Shah, Managing Director at Kotak Mahindra AMC.

In the case of GBI-EM Global index, the weightage would be approximately 8.7 per cent.  A total of 23 Indian Government Bonds (IGBs) are eligible and they all fall under the category of "fully accessible" for non-residents. These government bonds have a combined notional value of $330 billion. 

"The news has come at the right time when the market is under pressure and hereafter the possibility of larger FPI flows could be seen ahead of this inclusion. The Rupee would also benefit from this news. We continue to remain optimistic on a great Indian long term story. Equity markets would take this as a welcome note at the right time," said CA Rakeshh Mehta, Chairman, Mehta Equities - Mehta Group. 

To recall, India had started discussions on inclusion of its debt in global indices in 2019. JPMorgan cited Indian government’s introduction of the FAR program in 2020 and substantive market reforms that aided foreign portfolio investments. It said almost three-quarters of benchmark investors surveyed were in favour of India’s inclusion in to the index.

"India will have a maximum weight of 10 per cent, which means $24 billion inflows, which is huge. This will reset the base rate for India and the yield should come down sharply. India's cost of borrowing will come down. Banks' treasury will be flushed with mark-to-market gains. At the same time, it is a big positive for our currency as a big dollar flow will be there due to the buying of GSEC. As far as the equity market is concerned, it is positive for banks, NBFC, leveraged companies. By and large, it is a big macro positive for India," said Mukesh Kochar, National Head - Wealth, AUM Capital.

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