India’s Inclusion Under JPMorgan’s Government Bond Index-Emerging Markets: Even as JPMorgan Chase & Co said it will add Indian government bonds (IGBs) into its benchmark Emerging Market index from June 28, 2024, the much-awaited measure is being welcomed. Experts said it will give global investors greater access to the Indian debt market, thus boosting the domestic debt market. It will also work as a catalyst for the bond market deepening, apart from strengthening the Indian rupee.
“India is expected to reach the maximum weight of 10 per cent in the Global Diversified index (GBI-EM GD),” according to the JPMorgan note.
The inclusion of the IGBs will be staggered over a 10-month period from June 28, 2024, to March 31, 2025, implying an inclusion of 1 per cent weightage per month.
Index inclusion follows “the Indian government’s introduction of the FAR program in 2020 and substantive market reforms for aiding foreign portfolio investments,” the team led by the firm’s global head of index research, Gloria Kim, said in a statement. Almost three-quarters of benchmark investors surveyed were in favour of India’s inclusion in the index, they said.
What Is JPMorgan’s Government Bond Index — Emerging Markets?
The JPMorgan Government Bond Index-Emerging Markets (GBI-EM) is a comprehensive emerging market debt benchmark that tracks local currency bonds issued by various emerging market governments. It was launched in June 2005. The index helps global investors look more closely at local markets in search of higher yield and greater diversification.
India’s Inclusion In The Index
JPMorgan Chase & Co. will add Indian government bonds (IGBs) into its benchmark Emerging Market index, starting June 28, 2024. “India is expected to reach the maximum weight of 10 per cent in the Global Diversified index (GBI-EM GD),” according to the JPMorgan note.
The inclusion of the IGBs will be staggered over a 10-month period from June 28, 2024, to March 31, 2025, implying an inclusion of 1 per cent weightage per month.
India’s inclusion in the Index follows the Indian government’s introduction of the FAR programme in 2020 and substantive market reforms for aiding foreign portfolio investments.
What Does It Mean For India?
Shantanu Bhargava, managing director and head (discretionary investment services) at Waterfield Advisors, said, “This (India’s inclusion) has been a long-awaited measure and could be a significant boost for Indian debt markets. It could act as a catalyst for much-needed bond market deepening.
In the medium to long term, enhanced foreign participation could result in reduced yields on government bonds. That, in turn, may gradually (medium/long term) reduce the yields on corporate bonds too.”
He added that it could lead to a reduction in the cost of capital and cost of borrowing over the long term. It could also have a positive impact on India’s currency in the medium to long run.
According to HSBC Holdings Plc, the inclusion may also prompt flows of as much as $30 billion.
IDFC Bank in its note said, “India will be included in GBI EM Global Diversified Index (GBI EM GD) which has an AUM of $213 billion benchmarked to it. India will get a weight of 10 per cent, which will be added from next year, 1 per cent will be added per month (June 28 2024 to March 31 2025).”
It said the assets under management (AUM) of funds tracking the JPMorgan GBI-EM family of indices are $236 billion. The index inclusion could result in inflows of $23.6 billion into FAR g-secs starting next year and completed by April / May 2025. FPI holdings of outstanding g-sec could rise to 3.4 per cent by April/ May 2025 versus 1.7 per cent in September 2024.
“India is also expected to enter other JP Morgan bond indexes – JADE Global Diversified index, JESG GBI-EM index and other aggregate suites of local currency indexes. Post the inclusion into JP Morgan EM Bond Index, India’s chances of Inclusion into Bloomberg Global Aggregate Index also rises,” IDFC Bank said.
Comments
0 comment