- JPMorgan Chase & Co. confirms its plan to include India in its emerging market debt index from June, a move that could bring an estimated $20 billion to $25 billion in foreign inflows to the Indian bond market.
- Since the announcement, Indian sovereign bonds have seen approximately $8 billion of inflows, and the rupee has managed to withstand the impact of a broad strengthening in the dollar.
- Experts predict that the inclusion could trigger substantial inflows from foreign investors, deepening market liquidity, and exerting downward pressure on yields, thus reducing borrowing costs for India.
JPMorgan’s inclusion of India in its emerging market debt index could bring significant foreign inflows to the Indian bond market, deepening market liquidity and potentially lowering borrowing costs.
JPMorgan’s Emerging Market Debt Index to Include India
JPMorgan Chase & Co. has announced its plan to include India in its emerging market debt index from June. The firm’s global head of index research, Gloria Kim, stated that the market feedback has been largely positive, with most of its index clients already set up to trade in the Indian Government Bonds market. The firm estimates its emerging-market bond gauge currently has $216 billion of assets under management. Assuming an index-neutral position, the estimated foreign inflows in the Indian bond market will be between $20 billion and $25 billion.
Impact on Indian Sovereign Bonds and the Rupee
Since JPMorgan’s announcement, Indian sovereign bonds have seen about $8 billion of inflows into the Fully Accessible Route securities. Moreover, the foreign exchange reserves hitting a record high has helped the rupee shrug off the impact of a broad strengthening in the dollar. The major impact, however, is expected to be on bond yields, which are likely to drift lower going forward.
Experts’ Take on the Inclusion
Experts believe that the inclusion of Indian bonds in global indices like JPMorgan GBI-EM could trigger substantial inflows from foreign investors, deepening market liquidity. It may exert downward pressure on yields, reducing borrowing costs for India. The rupee could strengthen against major currencies,” said Atul Parakh, CEO- Bigul. However, he believes the impact hinges on India’s ability to implement regulatory reforms, ensure market accessibility, and maintain fiscal/monetary prudence. Globally, factors like US interest rates, emerging market risk sentiment, and currency fluctuations will influence investment flows.
Conclusion
The inclusion of India in JPMorgan’s emerging market debt index is a significant development that could bring substantial foreign inflows to the Indian bond market. This move could deepen market liquidity, potentially lower borrowing costs for India, and strengthen the rupee against major currencies. However, the impact of this move will depend on India’s ability to implement regulatory reforms, ensure market accessibility, and maintain fiscal and monetary prudence.
