JPMorgan to Include Indian Government Bonds in Emerging Market Index

JPMorgan to Include Indian Government Bonds in Emerging Market Index

International banking giant, JPMorgan Chase & Co., has declared that it will add Indian government bonds to its benchmark emerging-market index, known as the JPMorgan Government Bond Index-Emerging Markets, commencing June 28, 2024.

This move could propel billions of foreign inflows into India’s debt market, showcasing the country’s increasing allure for international investors. The decision to include India in the index is driven by the country’s economic growth, geopolitical influence, and its resilience to financial turbulence.

Encouragement of Foreign Portfolio Investments

This decision comes on the back of the Indian government’s introduction of bonds in 2020 that can be fully owned by foreigners, as well as measures to encourage foreign portfolio investments. The inclusion of Indian securities in the index was supported by almost three-quarters of benchmark investors surveyed. The move may generate inflows of up to $25 billion by March 2025, according to Nagaraj Kulkarni, co-head of Asia rates ex-China at Standard Chartered Plc.

The inclusion of India in the index has boosted the country’s bonds and the rupee. Lower yields are expected to benefit the nation’s state-backed lenders through increased treasury income, and non-bank lenders will also benefit from the lower cost of capital. The growing appeal of India as an investment destination contrasts sharply with the struggles of other emerging markets, such as China.

Confidence in the Indian Economy

Foreign investors have bought $3.5 billion worth of Indian government debt this year, reflecting their confidence in the long-term prospects of the Indian economy. India has also been a top investment destination among major emerging markets in terms of equities, with its fast-growing economy and robust corporate earnings propelling the nation’s equity benchmark near an all-time high.

The inclusion of Indian bonds in the index is also expected to spur gains in the shares of Indian banks, shadow lenders, and debt service providers. Despite concerns over rising oil prices and higher US interest rates, foreign investors have bought almost $16 billion on a net basis in India this year, marking the largest annual inflow since 2020.

Staggered Inclusion and Anticipation of Foreign Investors

Currently, 23 bonds worth a combined notional $330 billion are eligible to be added to the index, and the inclusion will be staggered over 10 months at roughly 1% weight per month. Foreigners have increased their holdings of such bonds to almost $12 billion, up from $7.4 billion at the end of 2022, in anticipation of this inclusion.

Egypt on Negative Watch

Meanwhile, Egypt has been placed on negative watch due to currency repatriation hurdles reported by investors. Its index eligibility will be assessed over the next three to six months.