JPMorgan includes India in key bond index, setting stage for fund influx

JPMorgan Chase and Co. has announced the addition of Indian government bonds to its benchmark emerging-market index in a move that could potentially drive billions of dollars into the country’s debt market.

The bonds will be included in the GBI-EM Global index beginning 28 June 2024, JPMorgan Chase said in a statement, adding that 23 government bonds with a combined notional value of $330 billion meet the criteria for index eligibility.

India is expected to reach the maximum weight of 10% in the GBI-EM Global Diversified index (GBI-EM GD), the statement added. Analysts suggested that the move could lead to potential inflows of about $30 billion.

Such large inflows into Indian bonds will drive up their prices, which in turn will inversely affect yields, leading to lower borrowing costs for both the government and Indian companies, analysts said.

The inclusion of the bonds will be staggered over a 10-month period till March 2025, with 1% weight per month. “GBI-EM GD accounts for $213 billion of the estimated $236 billion benchmarked to the GBI-EM family of indices,” the statement said.

JPMorgan Chase’s decision to add Indian government bonds to its emerging-market index not only opens the doors for significant investments into India’s debt market but also serves as a strong vote of confidence in the country’s economic stability, analysts said.

The move indicates that global financial players see India as a reliable and stable market for long-term investment, they added.

Inclusion in the GBI-EM index is also expected to boost liquidity in the government bond market. With more global investors joining the rush for Indian bonds, trading volumes are likely to jump, thereby narrowing the gap between buying and selling prices, technically known as bid-ask spreads.

Global investors exploring diversification prospects across asset classes and regions will also get to spread their risk across emerging market bonds, analysts said.

Meanwhile, increased foreign investments can strengthen the domestic currency, which could have an impact on exports, while working to the advantage of investors with significant exposure to the rupee, wealth management firm ArunAsset Investment Services said in a note on LinkedIn.

Top government policymakers and finance ministry officials welcomed JPMorgan’s decision.

“JPMorgan bond index inclusion is a welcome development, (and) it shows confidence in the Indian economy. It is their decision and they have indicated what percentage they are looking for,” economic affairs secretary Ajay Seth said.

V. Anantha Nageswaran, chief economic adviser to the government of India, said, “Long-term investors in Indian government bonds would be amply rewarded, just as long-term equity investors in the Indian markets.”