Ahead of the inclusion of Indian governments bonds in the JP Morgan Emerging Market (EM) Bond Index, the Indian Rupee (INR) has shown slight appreciation towards 83.440 level against dollar
Starting on June 28, 2024, India’s sovereign bonds will be part of JP Morgan EM bond index a widely tracked index, with the inclusion process spanning until March 31, 2025. This inclusion is significant as global bond indices are crucial for investors—including mutual funds, pension funds, and passive investors—in tracking bond movements across multiple jurisdictions, thereby guiding their investment decisions. This inclusion underpinned the India’s Economic stability and solid financial management.
Since the announcement in September 2023, there has already been a $10 billion inflow into Indian bonds. According to Morgan Stanley, the JP Morgan index had positioned for India’s inclusion with 3.6% of their assets allocated to the nation’s sovereign debt as of the end of May 2024. This event could potentially draw an additional $20 billion to $25 billion in global flows into local debt. India is set to have a 10% weighting in the index, which will increase by 1% over next 10 months.
This inclusion reflects a broad consensus among foreign investors that India has achieved sufficient financial stability, demonstrating substantial appetite for Indian government securities (G-Secs) in global investment portfolios. The inclusion might come at the expense of other emerging markets such as Thailand, Brazil, Colombia, South Africa, Poland, and the Czech Republic, according to Morgan Stanley.
Furthermore, inclusion in indices like those of JP Morgan, Bloomberg, and potentially FTSE, would open the Indian bond market to a larger pool of investors. Recently, S&P Global Ratings raised India’s sovereign rating outlook to ‘positive’ from ‘stable,’ citing prosperous long-term growth and a stable fiscal and monetary stance for the economy.
With India’s economic stability and growth prospects, its bonds offer higher yields compared to those of developed markets and many other emerging markets. Additionally, the lower correlation with global bonds provides diversification benefits. The Reserve Bank of India’s (RBI) initiative of the Fully Accessible Route (FAR) will make the Indian bond market more robust, increasing its share in the global market. This will further strengthen and stabilize the Indian Rupee, building confidence among investors.