JPMorgan To Add India To Emerging-Markets Bond Index, Govt Bonds To Attract Foreign Inflows

The highly anticipated move has the potential to bring billions of dollars in investments to India's debt market. This inclusion is scheduled for June 28, 2024.

JPMorgan said that there are presently 23 Indian government bonds (IGBs) with a collective value amounting to $330 billion that meet the eligibility criteria for inclusion in the index.

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JPMorgan Chase & Co. has announced the incorporation of Indian government bonds (IGBs) into its benchmark Emerging Market index. The highly anticipated move has the potential to bring billions of dollars in investments to India's debt market. This inclusion is scheduled for June 28, 2024.

"India's weight is expected to reach the maximum weight threshold of 10 per cent in the GBI-EM Global Diversified, and approximately 8.7 per cent in the GBI-EM Global index," JPMorgan said in a note. The process of including IGBs will occur gradually over a span of 10 months, stretching from June 28, 2024, to March 31, 2025. This gradual approach entails adding a 1 per cent weightage to IGBs in the index each month.

 

JPMorgan note said that there are presently 23 Indian government bonds (IGBs) with a collective value amounting to $330 billion that meet the eligibility criteria for inclusion in the index. Among these, the GBI-EM GD segment accounts for approximately $213 billion of the total, which is part of the estimated $236 billion benchmarked within the GBI-EM family of indices.

 

“The Indian government’s introduction of the FAR program in 2020 and substantive market reforms for aiding foreign portfolio investments” has pushed the index provider to add IGBs to their composition, said the team led by the firm’s global head of index research, Gloria Kim, as per Bloomberg. They also said that almost three-quarters of benchmark investors surveyed were in favor of India’s inclusion in the index. 

What Is JPMorgan's Emerging Market Index?

JPMorgan's Emerging Market Index, often referred to as the "JPMorgan Emerging Market Index" or "EMI," is a widely followed benchmark index that tracks the performance of emerging market bonds. This index is used by investors, analysts, and fund managers to assess the overall performance and trends in emerging market debt.

The JPMorgan Emerging Market Index includes bonds issued by governments and corporations in emerging market economies. It provides a measure of the yield and performance of these bonds, allowing investors to gauge the risk and return potential of investing in emerging market debt.

Why India's Inclusion Is Crucial?

The inclusion of Indian government bonds in JPMorgan's Emerging Market index is expected to attract substantial foreign investment into India's debt market. International investors often follow benchmark indices to allocate their funds, and this move will make Indian bonds a more attractive investment option. With the increased demand for Indian government bonds from foreign investors, India's borrowing costs may decrease. This is because higher demand for bonds typically leads to lower yields, which can result in cost savings for the Indian government when issuing debt.

Notably, India is the final major emerging market to join global debt indices, having previously not been included, in contrast to countries like China.

According to HSBC Holdings Plc, India's inclusion in the global index is set to offer global investors greater access to the world's fastest-growing major economy, known for its high returns in the region. This inclusion is also expected to drive potential inflows of up to $30 billion, noted the Bloogmberg report. 

In recent months, there had been growing anticipation regarding India's potential addition to international indices, as index providers sought to diversify their constituents, the report further said. Russia's invasion of Ukraine resulted in its removal from various indexes, and China's economic challenges dampened enthusiasm for its sovereign debt, leaving India as the last major emerging market to be included in global debt indexes.

Indian authorities have been relatively steadfast in making tax policy changes necessary for the seamless addition of Indian securities to global indexes, the report said. In contrast, other emerging markets like Korea have taken steps to facilitate foreign access through agreements such as opening omnibus accounts with institutions like Euroclear Bank SA.

JPMorgan, as per the report, said that support for the inclusion of India's index-eligible, high-yield government bonds had risen to 60 per cent in its survey in March, up from 50 per cent the previous year. Foreign investors have significantly increased their holdings of these bonds, reaching almost $12 billion, up from $7.4 billion at the end of 2022, in anticipation of this inclusion, according to data from the Clearing Corporation of India.

Additionally, FTSE Russell, another major index provider, is closely monitoring India's bonds for potential inclusion in its emerging market index.

Meanwhile, Egypt has been placed on negative watch due to reported challenges related to currency repatriation, according to JPMorgan. The eligibility of Egypt's index will be evaluated over the next three to six months.