Analysts predict that JP Morgan’s decision to include Indian government bonds in its global index from June next year will result in a direct inflow of USD 20-25 billion in the country’s debt market over 18-21 months.
JP Morgan announced that India will eventually have a maximum weight of 10% in the index and approximately 8.7% in the emerging market global index.
In a statement on Friday, JP Morgan stated that 73% of investors are in favor of the decision. The inclusion will be phased in over a 10-month period from June 28, 2024 to March 31, 2025.
Rahul Bajoria, Managing Director and Head of Emerging Market Asia (ex-China) at Barclays, commented that this implies direct inflows of USD 20-25 billion over the next 18-21 months, with the possibility of some front-loading of inflows. Japanese brokerage Nomura has estimated the inflows to be USD 23.6 billion, which is 10% of the USD 236 billion of assets under management tracking the index.
A total of 23 government securities (G-Secs) with a combined value of USD 330 billion are eligible for inclusion in the global index.
Bajoria mentioned that the country’s chances of entering other major bond indices such as the Bloomberg Global Aggregate Index and the FTSE Russell World Government Bond Index are low. These indices require Euroclear-ability for settlements and a higher sovereign credit rating.
The 23 G-Secs, with USD 330 billion notional value, represent 80% of the outstanding FAR bonds (USD 410 billion). Inclusion in the index is expected to have a positive impact on FAR G-Secs during the inclusion phase.
Bajoria also stated that foreigners’ demand for G-Secs through the “fully accessible route” (FAR) will remain strong, especially given the potential for front-loaded inflows.
Meanwhile, G-Secs yields fell on Friday and the rupee rallied on the index inclusion reports, despite headwinds from a strong dollar, high US yields, and elevated crude oil prices.
The government welcomed JP Morgan’s decision, stating that it will lower borrowing costs and attract higher foreign flows. The move will also encourage large passive investments from overseas, making more domestic capital available for industry.
Economic affairs secretary Ajay Seth said, “It is a welcome development showing confidence in our economy.” Chief economic advisor Anantha Nageswaran also expressed confidence in India’s potential and growth prospects.
Analysts from Nomura see some pre-positioning by global investors and stated that large investors already hold 2-3% of their funds in G-Secs or India risk. In 2023, offshore investors have bought USD 3-4 billion of India bonds.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)