JPMorgan, a renowned financial institution, has announced its decision to include Indian government bonds in its Government Bond Index-Emerging Markets, effective from June 2024. The Finance Ministry in India has expressed confidence that this move will be beneficial for long-term investors, indicating the potential for equity-like returns in government bonds over time.
Economic Affairs Secretary Ajay Seth welcomed this development, stating, “It is a welcome development showing confidence in the Indian economy.” Chief Economic Advisor VV Anantha Nageswaran echoed these sentiments, emphasizing that JPMorgan’s decision reflects the confidence of financial market participants in India’s growth prospects, macroeconomic stability, and fiscal policies. He drew a parallel between long-term equity investors’ success in the Indian markets and the potential benefits for long-term investors in Indian government bonds.
JPMorgan’s decision involves India’s inclusion in the GBI EM Global Diversified Index (GBI EM GD), which boasts assets under management (AUM) totaling $213 billion. India will carry a weight of 10 percent in this index, with the addition spread over ten months from June 28, 2024, to March 31, 2025. Additionally, India is expected to be incorporated into other JP Morgan bond indices, including the JADE Global Diversified Index, JESG GBI-EM Index, and various local currency indexes.
According to HDFC Bank’s report, the funds tracking JP Morgan GBI-EM indices have AUM of $236 billion. This index inclusion could potentially result in inflows of $23.6 billion into Indian government securities (g-secs) starting next year and concluding by April/May 2025. Foreign portfolio investors (FPI) holdings in outstanding g-secs could rise to 3.4 percent by April/May 2025, compared to 1.7 percent in September 2024.
JP Morgan’s bond indices are widely followed by global investors, simplifying the task of monitoring various markets individually. Morgan Stanley estimates that India’s inclusion in the global index may lead to an influx of $30 billion into India’s bond market within ten months and a substantial $170 to $250 billion over the next decade. JP Morgan also anticipates that foreign ownership in Indian government securities may increase from the current level of less than 2 percent to 10 percent. While there has been a long-standing push for India’s inclusion in this index since 2013, the primary advantage lies in the influx of liquidity.
India, like developed markets, has been striving to increase the participation of bond funds in the debt market, shifting away from traditional bank funds. Inclusion in this index is expected to enhance liquidity and further this objective. However, being on a global platform with active supervision on returns may introduce some currency volatility risks, which will need to be carefully managed. Moreover keep close eyes on Gift Nifty live price movement to take decision over investments.