JPMorgan on Friday said it will include India in its widely tracked emerging market debt index, setting the stage for 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, per a Reuters report.
The inclusion will begin 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 said.
Here’s what analysts said on the impact of JPMorgan’s move on Indian markets.
A big long-term positive in the domestic market after the news that the JPMorgan Chase & Co. will add Indian government bonds to its benchmark emerging-market index, a keenly awaited event that could drive billions of foreign inflows to the nation’s debt market, starting from June 28 2024.
Nilesh Shah, Managing Director, Kotak Mahindra AMC
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.
HSBC Holdings Plc
The inclusion may also prompt flows of as much as $30 billion. We expect this as a positive for PSU Banks.
Foreign bank DBS said there was also high demand amongst benchmark investors for India’s inclusion in the index and that a final 10% weightage in the JPM index could lead to inflows of $25 billion to $30 billion into India after the inclusion is complete.
Rakeshh Mehta chairman of Mehta Equities Ltd
India’s inclusion in JP Morgan emerging markets bond index is great news which would give a booster access to global investors to participate in the world’s fastest-growing large economy that would offer them the highest alpha returns in the emerging region.
I believe it is after waiting for 10 odd years India has finally been included in the JP Morgan EM Bond Index today effective 28th June 2024. The credit goes to the Govt of India, regulator as well as various government organisations who made this possible in the current scenario.
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.
Madhavi Arora, Economist at Emkay Global Financial
The much-anticipated inclusion of India in JP Morgan GBI-EM index will be effective from 28th Jun’24, accounting for post-announcement operational lags. India’s weight of 10% will be staggered over 10 months, leading to passive inflows of $22bn ($26bn accounting for addition in other smaller indices).
The actual flows though may be higher, contingent on market dynamics and active flows. Structurally, this will lower India’s risk premia/cost of funding, enhance the liquidity and ownership base of G-Secs and help India finance its fiscal and CAD.
This does not immediately pave way for inclusion in FTSE and Bloomberg indexes, which have more stringent conditions (FPI taxation/Euroclear). But it could have a demonstration effect in the medium term as the lower risk premia could trigger positive externalities.
Near-term, we expect bond yields and INR to reverse gains after the initial euphoria, tracking global markets. However, the trend will again reverse in favour of bonds by end-Mar’24, with 10-yr yield coming off well below 7%.
For 2H FY24, we see USD-INR ranging 82.25-84.25, with tactical RBI intervention keeping it middle of EM Asia pack.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services
JP Morgan’s inclusion of India in its Emerging Market Bond Index will reduce bond yields and the consequent decline in the cost of borrowing will boost the bottom line of companies.