Indian Government Bonds are set to be included in the JP Morgan Government Bond Index, Emerging Market (GBI-EM) starting from June 28, 2024, and continuing over a 10 month period till March 31, 2025. The inclusion will see India having a 1 per cent weightage in the JPMorgan Emerging Market (EM) Bond index, gradually rising to 10 per cent at an inclusion rate of about 1 per cent weight per month. This inclusion is expected to bring in an estimated USD 20-25 billion of inflows into the Indian bond market, with USD 10 billion already attracted since the inclusion was announced in September last year. Only Indian government bonds issued by the Reserve Bank of India (RBI) under the Fully Accessible Route (FAR) will be included in the indices. All FAR-designated IGBs maturing after December 31, 2026, will be eligible to be included in the JPMorgan Emerging Market (EM) Bond index.
In a post-monetary policy press conference on June 7, RBI Governor Shaktikanta Das stated that the central bank is not concerned about the significant foreign fund inflows resulting from the global bond inclusion. He mentioned that the RBI has various mechanisms in place to manage these flows, and has successfully managed similar situations in the past. Experts believe that the heavy flows resulting from index inclusion will boost demand for Indian government securities in the current fiscal year, once short-term liquidity issues are resolved in certain papers.
Vishal Gupta, Co-founder of IndiaBonds.com, views the inclusion of Indian Government bonds in the JP Morgan Index as a pivotal moment for the fixed-income markets in India. He emphasizes that this move will attract global bond investors to the Indian bond markets, with initial investments projected at USD 25-30 billion, and potential for continued growth in the following years. Gupta highlights the importance of growing the investor base for any market, and notes that index inclusion helps in expanding the number of players, leading to enhanced market liquidity. He predicts that investments will initially flow into government bonds, but will eventually extend to lower credit ratings as well.
The global index provider JPMorgan’s decision to include Indian government bonds in its emerging market indices was announced on September 21, 2023. This move is seen as a significant development that puts the Indian bond markets on the radar of global bond investors. With the rising interest in allocating capital to emerging markets, investors have shown a reluctance to invest in other large countries such as Russia or China in recent years. Therefore, the timing of India’s index inclusion is deemed to be ideal, with expectations that investments will initially focus on government bonds and later expand to include bonds with lower credit ratings over time.
The gradual inclusion of Indian Government bonds in the JPMorgan Government Bond Index, Emerging Market (GBI-EM) is expected to have a substantial impact on the Indian bond market. The steady rise in weightage from 1 per cent to 10 per cent over a 10 month period signifies the growing significance of Indian bonds on the global stage. With the potential influx of USD 20-25 billion in investments, the Indian bond market is poised for increased liquidity and interest from global investors. This development showcases India’s attractiveness as an investment destination and underlines the confidence of global investors in the country’s economic prospects.
Overall, the inclusion of Indian government bonds in the JP Morgan Government Bond Index, Emerging Market (GBI-EM) marks a significant milestone for the Indian fixed-income markets. This move is expected to attract substantial foreign investments and expand the investor base, leading to enhanced market liquidity and increased interest in Indian government securities. With India’s weightage set to gradually rise over the 10-month inclusion period, the country is positioned to become a key player in the global bond market. The strategic timing of the index inclusion, amidst growing interest in emerging markets, bodes well for India’s economic growth and position as an attractive investment destination.
