Indian Bonds to Be Part of JPMorgan Emerging Markets Bond Index, Attracting More Foreign InvestmentThe long wait is over. JPMorgan Chase & Co. will add Indian government bonds to its benchmark emerging-market index, a move that could trigger massive inflows of foreign investment into the nation’s debt market.
Starting June 28, 2024, the JPMorgan Government Bond Index-Emerging Markets will give weightage to Indian securities, according to a statement released on Thursday. India could have a maximum weight of 10% on the index.
The team led by the firm’s global head of index research, Gloria Kim, said in a statement, “The Indian government’s introduction of the FAR program in 2020 and substantive market reforms for aiding foreign portfolio investments have bolstered the inclusion of Indian sovereign bonds in the JPMorgan Emerging Markets Bond Index.”
According to a survey of benchmark investors, nearly 75% of them were in favor of India’s inclusion in the index.
According to data compiled by Bloomberg, foreign investors have purchased $3.5 billion worth of Indian government debt this year. In a recent note, HSBC Holdings Plc stated that providing global investors with greater access could potentially lead to inflows of up to $30 billion.
According to a report by Goldman Sachs Group Inc. analysts earlier this month, India has emerged as one of the top investment destinations among major emerging markets this year. The nation’s equity benchmark has been pushed near an all-time high due to its fast-growing economy and solid corporate earnings. According to the survey, India is the most preferred investment among developing-market money managers for their Asia portfolios.
Foreign investors have purchased nearly $16 billion worth of Indian assets on a net basis this year, despite concerns over rising oil prices and US interest rates expected to remain elevated for an extended period, which have led to outflows from local shares in September. This is expected to be the largest annual inflow since 2020.”With inflation coming under control, the inclusion will open more gates for foreign capital to flow into India.” Bloomberg quotes Charu Chanana, a strategist at Saxo Markets in Singapore, as saying.
Currently, 23 Indian bonds worth a total of $330 billion are eligible to be included in the JPMorgan Emerging Markets Bond Index. The inclusion will be phased in gradually over 10 months, at a rate of about 1% per month.
Foreign investors have increased their holdings of these bonds in anticipation of the inclusion, from $7.4 billion at the end of 2022 to almost $12 billion today, according to data from Clearing Corp. of India. The rupee was trading 0.4% higher in offshore trading early Friday, before the bond market opened.
Another major index provider, FTSE Russell, is also considering including Indian bonds in its emerging market gauge.
Meanwhile, Egypt has been placed on negative watch by JPMorgan due to concerns about currency repatriation hurdles reported by investors. The country’s index eligibility will be assessed over the next three to six months.