JP Morgan will include Indian bonds in its JP Morgan GBI-EM Global Series of indices on Friday, marking a significant milestone for the country’s bond market. This inclusion is expected to pave the way for substantial foreign investments, potentially amounting to $25-30 billion. The process will unfold gradually over a 10-month period, with Indian domestic bonds initially holding a 1% weightage in the index, increasing by 1% each month until it reaches a maximum of 10% by March 2025.
With this, India becomes the 25th market to be included in the index since its inception in June 2005. The turnover in Indian local market instruments exceeded $350 billion in 2023, comprising 9.2% of the total trading volume in Emerging Markets (EM).
According to JP Morgan, Indian government bonds included in the index will boast the highest duration at 7.03 years and a yield-to-maturity above the average at 7.09%. This move is anticipated to elevate EM Asia’s weight in the GBI-EM GD index significantly, potentially accounting for nearly half of the total index weight by the first quarter of 2025.
29 government bonds meeting the criteria under the Fully Accessible Route will be included in the Government Bond Index – Emerging Markets suite starting Friday. Among these, the 7.04% bond maturing in 2029 and the 7.02% bond maturing in 2031 were recently added to the list of 27 bonds identified earlier this month.
Initially, India’s bonds will carry a 1% weight in the Global Diversified Index, with this allocation gradually increasing to a maximum of 10% by March 2025. Bonds eligible for inclusion must have an outstanding duration of over 2.5 years and a face value exceeding $1 billion.
The 7.18% bond maturing in 2033 is expected to hold the highest individual weight, based on data from the Reserve Bank of India.
Boost to bond market
JP Morgan anticipates that India’s inclusion in the Government Bond Index – Emerging Market suite will attract $20-25 billion in foreign investment on an index-neutral weight basis. Unlike the broader suite, India’s integration into aggregated local currency indices will occur in a single event, although the associated inflows are expected to be less substantial.
The inclusion is seen as a watershed moment for India’s fixed-income markets, positioning them prominently on the radar of global bond investors. Initial estimates suggest that the influx of investments could range between $25-30 billion, with prospects for continued growth in the coming years.
Upon inclusion, India will enter the Government Bond Index-Aggregate with an estimated weight of 1.16%, the Government Bond Index-Aggregate Diversified with 3.47%, and the Global Aggregate Bond Index with 0.69%.
Separately, India’s inclusion in the J.P. Morgan Asia Diversified Index will be staggered over a 10-month period, potentially reaching up to 20% of the index weight by March 2025.
