JPMorgan to include India in its emerging market debt index, paving the way for billions in inflows
JPMorgan is set to include India in its emerging market debt index, potentially leading to significant inflows into the country's economy.
JPMorgan said it will include Indian government bonds in its widely tracked emerging market debt index. This inclusion is likely to prompt billions of dollars of inflows into the world's fifth-largest economy.
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 according to JPMorgan.
The index provider will add the securities starting June 28, 2024. India will have a maximum weight of 10% on the index, according to a statement.
“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, Kotak Mahindra AMC.
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.
“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.
Inclusion will start on June 28, 2024, and extend over 10 months with 1% increments on its index weighting, as India is expected to reach the maximum weighting of 10%, JPMorgan added.
“This is great news and one of the long-awaited ones by the market. This JP Morgan index is $240 billion. India will be 10% of it which means $24 billion 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,” said Mukesh Kochar, National Head - Wealth, AUM Capital.
Since COVID-19, the fiscal deficit in India has remained elevated due to higher borrowing. This event will ease borrowing pressure as a large part of the borrowing will be observed by this route, Kochar added.
“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 etc By and large it is a big macro positive for India,” Kochar said.
Foreign investor have net purchased Indian bonds to the tune of $3.4 billion so far in 2023. Foreign investors own less than 2% of outstanding Indian government debt.
In March, JPMorgan had said that support for adding India’s index-eligible, high-yielding government bonds had risen to 60% in its survey, up from 50% in the previous year.
Meanwhile, another major index provider, FTSE Russell also has Indian bonds on index watch for inclusion in its emerging market gauge.
JPMorgan also said Egypt's eligibility in the GBI-EM series will be on review for three to six months, due to reports of "material" hurdles in currency repatriation.
"If the hurdles cited by benchmarked investors persist, a status review will be triggered for Egypt's removal from the GBI-EM series," JPMorgan said.
Egypt will remain in the index during the review.
(With inputs from Reuters)
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