JPMorgan To Add India To Its Emerging-Markets Bond Index From June 2024

JPMorgan Chase & Co. will add Indian government bonds (IGBs) into its benchmark Emerging Market index, starting June 28, 2024.

“India is expected to reach the maximum weight of 10 percent in the Global Diversified index (GBI-EM GD),” according to the JPMorgan note.

The inclusion of the IGBs will be staggered over a 10-month period from June 28, 2024 to March 31, 2025, implying an inclusion of 1 per cent weightage per month.

Index inclusion follows “the Indian government’s introduction of the FAR program in 2020 and substantive market reforms for aiding foreign portfolio investments,” the team led by the firm’s global head of index research, Gloria Kim, said in a statement. Almost three-quarters of benchmark investors surveyed were in favor of India’s inclusion in to the index, they said.

India’s addition to a major global gauge will give global investors greater access to the world’s fastest-growing large economy that offers some of the highest returns in the region. The inclusion may also prompt flows of as much as $30 billion, according to HSBC Holdings Plc.

Expectations that India may be added to international gauges had been rising in recent months as providers look to diversify index constituents. Russia’s invasion of Ukraine had seen it drop off indexes, while China’s worsening economic woes have taken the shine off the country’s sovereign debt.

That left India as the world’s last big emerging market that hasn’t joined others like China on the global debt indexes.

Authorities in India have been largely uncompromising in making changes to tax policies that would make it easier for the securities to be added to global indexes. Korea, another large emerging market, signed an agreement to open an omnibus account with Euroclear Bank SA, facilitating foreigners’ access.

Last year, JPMorgan had said investors wanted issues resolved such as a lengthy registration process and operational readiness required for trading, settlement and custody of assets onshore.

Mukesh Kochar, National Head – Wealth, AUM Capital, commenting on the addition of India to its emerging market bond index, said: “This is great news and one of the long-awaited one by the market. This JP Morgan index is 240 bln USD. India will be 10% of it which means 24 bln USD which is huge. This will reset the base rate for India and the yield should come down sharply. India’s cost of borrowing will come down. Since covid, the fiscal deficit in India has remained elevated due to higher borrowing. This event will ease borrowing pressure as a large part of the borrowing will be observed by this route. Banks Treasury will be flushed with mark-to-market gains. At the same time, it is a big positive for our currency as a big dollar flow will be there due to the buying of gsec. As far as the equity market is concerned it is positive for Banks, NBFC, leveraged companies etc By and large it is a big macro positive for India.”