In boost to India, govt bonds in JP Morgan global index

India officially becomes a part of JP Morgan’s Government Bond Index — Emerging Markets (GBI-EM) beginning Friday, and the development should lead to financial inflows worth $23.6 billion into the country’s Fully Accessible Route (FAR) bonds.

India is the world’s fifth-largest economy and the country’s inclusion in JP Morgan’s GBI-EM should boost the domestic financial markets with greater scope of investment, rendering stability to Government Bonds.

Seen from a global perspective, the inclusion of India’s Government Bonds in the index could trigger reduction in the weights of the Czech Republic, Poland and Thailand over the next 10 months. Initially, Indian Government Bonds will see a 1 per cent weight transfer, to be hiked by 1 percentage point on a monthly basis till a cap of 10 per cent is reached by March 31 next year.

With a maximum cap of 10 per cent, India would join China, Mexico and Indonesia on the index, and the move should allow the country to attract $21 billion in investment by March 31, 2025, presuming that investors initially have zero weight in Indian Government Bonds.

India’s inclusion in the index was announced on September 21 last year and the country’s Government Bonds witnessed $10.4 billion in inflows after the announcement. This marked a significant improvement from the figure of $2.4 billion that 2023 saw over the first eight months, and yearly foreign outflows worth around $1 billion in 2021 and 2022. With India’s inclusion in JP Morgan’s GBI-EM, Foreign Portfolio Investor (FPI) holdings of outstanding FAR bonds are also projected to increase, to 3.4 per cent by May next year.

The index recognises as eligible only Indian Government Bonds that are issued under FAR by the Reserve Bank of India. The bond in question must have a minimum outstanding amount of more than $1 billion and a minimum residual maturity of two and a half years. This would make every FAR-issued Government Bond that matures after December 31, 2026, eligible.

JP Morgan’s Emerging Market Bond Index (EMBI) was launched in the early 1990s and is today universally accepted as the most quoted index for emerging market bonds. The index has over the years included the Government Bond Index — Emerging Markets (GBI-EM) and the Corporate Emerging Markets Bond Index (CEMBI). Globally, JP Morgan’s Emerging Market Global Diversified Index manages assets worth nearly $213 billion.

India’s inclusion in JP Morgan’s GBI-EM could encourage other leading EM index providers such as FTSE and Bloomberg to consider adding the country on their list.