India's Bond Index Entry On Schedule, Majority Of Clients Prepared: JPMorgan

The complexity of the documentation process for setting up trades in India has contributed to foreign investors' concerns regarding the country's inclusion in global indexes

JPMorgan Chase & Co. is progressing as planned to incorporate India into its emerging market debt index by June, with the majority of its clients prepared for trading, as stated by the firm's global head of index research. “Based on the annual Index Governance Consultation process, market feedback so far has been largely positive, with the majority of our index clients already set up to trade in the IGB market,” managing director Gloria Kim told Bloomberg.

“As always, there are still teething issues when entering a new market, however, we have found these to be related mostly to the operational readiness and flexibility of counterparties and custodians rather than barriers to entry,” she said, Kim said, recognising the reforms implemented by the government.

The complexity of the documentation process for setting up trades in India has contributed to foreign investors' concerns regarding the country's inclusion in global indexes. In September of last year, JPMorgan announced its intention to add India to its emerging market bond index, with a maximum weight allocation of 10 per cent.

Kim anticipates foreign inflows of between $20 billion and $25 billion, assuming an index-neutral stance. She also mentioned that the firm's current emerging-market bond index manages assets totalling $216 billion.

“We have seen in the past that assets tracking the index are relatively sticky in nature and generally remain consistent,” Kim said.

Since JPMorgan's announcement, Indian sovereign bonds have experienced approximately $8 billion in inflows into the securities known as Fully Accessible Route. However, some outflows were observed in April, coinciding with a global debt selloff. Despite this, a Bloomberg index tracking these bonds has exhibited superior performance compared to major peers throughout the year.

The anticipated inflows resulting from the long-awaited index inclusion are exerting influence across various Indian assets, with corporate bonds likewise outperforming comparable investments and foreign exchange reserves reaching unprecedented levels. These developments have contributed to the rupee's resilience against the broader strengthening of the dollar.