JPMorgan Adding India Local Govt Bonds To Index To Trigger Higher Inflows

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New Delhi: JPMorgan on Friday said it will include India in its widely tracked emerging market debt index, setting the stage for billions of dollars of inflows into the world's fifth-largest economy.

India's local bonds will be included in the Government Bond Index-Emerging Markets (GBI-EM) index and the index suite, benchmarked by about $236 billion in global funds according to JPMorgan. ()

JPMorgan said 23 Indian Government Bonds (IGBs) with a combined notional value of $330 billion are eligible. All fall under the category of "fully accessible" for non-residents. ()

"India's weight is expected to reach the maximum weight threshold of 10 percent in the GBI-EM Global Diversified, and approximately 8.7 percent in the GBI-EM Global index," said JPMorgan.

Inclusion will start on June 28, 2024, and extend over 10 months with 1% increments on its index weighting, as India is expected to reach the maximum weighting of 10%, JPMorgan said.

“This will provide a large additional pool of passive foreign funding for India. In the medium term it will lower the country’s cost of funding,” said Sanjeev Sanyal, a member of India's Economic Advisory Council to the Prime Minister.

India began talks on including its debt in global indexes in 2019, while also talking to Euroclear about clearing and settlement.

It removed foreign investment restrictions on some government securities in 2020 as part of an effort to enter global bond indexes. Several bonds are now part of the "Fully Accessible Route" and do not have foreign investment restrictions.

But the government's stance on other issues including capital gains taxes and local settlement delayed its inclusion.

Foreign investor buying in Indian bonds has remained tepid with net purchases of $3.4 billion so far in 2023. Foreign investors own less than 2 percent of outstanding Indian government debt.

"An inclusion in JP Morgan’s index could see others follow up," BofA Securities said in a report in July. The Indian rupee rose 0.3 percent in offshore trade before local markets opened while traders expected local bond yields to fall sharply.

"This announcement is a significant positive for the INR bond in the short-term as investors look to front-run the eventual inclusion," said analysts at DBS in a note on Friday.

In the same announcement, JPMorgan said Egypt's eligibility in the GBI-EM series will be on review for three to six months, due to reports of "material" hurdles in currency repatriation.

"If the hurdles cited by benchmarked investors persist, a status review will be triggered for Egypt's removal from the GBI-EM series," JPMorgan said. Egypt will remain in the index during the review.