In a historic moment, Indian government securities have been included in JPMorgan Chase’s emerging markets bond index from Friday, setting the stage for multi-billion dollar inflows. The entry of government securities is likely to attract around $30-billion inflows over the next 10 months from global bond investors, according to analysts. Foreign investors have already invested more than $11 billion into index-eligible bonds since the inclusion decision was announced in September last year.
“Foreign holdings of India bonds have been on the lower side till now and hence the index inclusion event could be a watershed moment for sovereign markets,” Aditya Bagree, head markets, Citi – India & Indian Subcontinent, told FE. “This development coupled with the strong macro-outlook for the country has bought India’s bond market to the attention of global investors and makes a strong case for overseas investors to increase overall allocation to India fixed income markets,” he said.
JPM indices is the start and as global investors become more familiar and comfortable with Indian fixed income markets, the probability of sovereign securities getting included in other indices increases, he added.
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India is starting out with a 1% weightage in the JPMorgan’s Global Bond Index Emerging Markets Index (GBI-EM), with a percentage point increase every month over 10 months.
“India is a strong diversification option, with good macros and a stable currency. We could see foreign inflows of $2-3 billion per month, with the pace likely to accelerate once the US starts cutting rates,” said Parul Mittal Sinha, head of Financial Markets for India and co-head of Macro Trading for ASA at Standard Chartered.
India has become the 25th market to be included in the index since its launch in June 2005 and is the biggest entrant in the index after China’s addition in 2020. Experts expect bond yields to ease further in coming months due to increased fund flows. The 10-year yields have fallen about 20 basis points since September 22 since the inclusion was announced. On Friday, yields on the benchmark 10-year bond were little changed at 7.009%, while the rupee rose to 83.39 against the dollar.
“The inclusion of government bonds in JPMorgan Chase’s emerging markets bond index will help in diversification of the investor base for Indian government securities. It shows growing confidence of global investors on India’s growth story,” said Piyush Agarwal, senior managing director, head- corporate and institutional banking (India), Mizuho Bank.
Foreign inflows will help reduce the government’s dependence on domestic investors to fund borrowing needs, which should incentivise banks to deploy more capital to businesses and lower the cost of funding.
In March, Bloomberg also announced that Indian government bonds will be included in its Emerging Market (EM) Local Currency Government Index and related indices from January 31, 2025.
Foreign investors have increased their exposure to longer dated securities, say experts.
“A trend that is also clear has been the preference of longer dated securities as investors increase duration exposure. Global funds have been adding exposure in the 10-30 year segment,” said Bagree.
Indian government bonds under the Fully Accessible Route (FAR) will be a part of the JPMorgan index.
