India Steps into J.P. Morgan’s Global Bond Index
India is set to make a grand entry into the J.P. Morgan GBI-EM Global Series of indices today. This significant inclusion will be implemented gradually over a 10-month span, with Indian government bonds (IGBs) initially holding a 10% weightage, increasing by 1% each month. Experts predict that this move could draw in potential inflows of $25-30 billion into the Indian market, positioning India as the 25th market to join the index since its inception in June 2005.
The announcement made by J.P. Morgan in September 2023 revealed that the country’s bonds would be integrated into its GBI-EM global index suite commencing on June 28, 2024. The IGBs are anticipated to reach a peak weight of 10% in the GBI-EM Global Diversified Index, with the staggered inclusion set from June 28, 2024, to March 31, 2025.
To qualify for inclusion in the index, a bond must be classified under the Fully Accessible Route (FAR). Currently, there are 27 FAR-designated bonds that meet the index’s criteria. With India’s local debt stock ranked amongst the largest in Emerging Markets (EM), the total outstanding bonds included in the index surpass $400 billion, trailing only behind China. Notable bonds with high weightage in the index include 7.18 GS 2033, 7.30 GS 2053, and 7.18 GS 2037.
During 2023, the trading turnover in Indian local market instruments exceeded $350 billion, constituting 9.2% of the total EM trading volume. With India’s inclusion, the country is expected to hold the longest duration across the index at 7.03 years and an above-average yield-to-maturity of 7.09%. This inclusion will also elevate EM Asia’s weight in the GBI-EM GD index to nearly half of the total, projecting an increase from 40% to 47.5% by Q1 2025.
Vishal Goenka, co-founder of IndiaBonds.com, hailed this as a momentous occasion for India’s fixed-income markets. He emphasized that the initial investments of $25-30 billion are just the tip of the iceberg, as index inclusion lays the foundation for sustained growth in the years to come.
Similarly, Jalpan Shah, Head of Fixed Income at Trust Mutual Fund, lauded the inclusion as a positive development for the Indian government bond market. He cited India’s robust economic growth, stable government, low inflation, minimal currency fluctuations, and fiscal prudence as compelling factors for Foreign Institutional Investors (FIIs) to consider investing in Indian government bonds.
The inclusion of Indian bonds in the J.P. Morgan EM index aims to broaden the investor base, leading to enhanced market liquidity. Industry experts predict a surge in non-resident participation in the local bond market, a trend facilitated by India’s inclusion in the index.
In conclusion, the integration of Indian Government Bonds (IGBs) into the J.P. Morgan index heralds a new era of opportunities for the Indian financial landscape, with significant inflows expected to reshape the market dynamics. This strategic move not only solidifies India’s position on the global stage but also underscores the country’s attractiveness to international investors seeking stable, long-term returns.
