JP Morgan has announced the inclusion of Indian Government Bonds in its Emerging Market (EM) Indices, a process set to commence from June 2024 and span 10 months, ending in March 2025. The move is anticipated to generate inflows of approximately $25 billion into Indian bonds over this period.
The decision follows the Indian government's active efforts to have its bonds included in global indices. The government, under Finance Minister Nirmala Sitharaman, has been collaborating with entities since 2022 to address any obstacles hindering this inclusion. The aim is to attract more global investments into India's debt market, which until now has primarily seen interest from equity investors.
JP Morgan's criteria for index inclusion stipulates that eligible instruments must have a notional outstanding above $1 billion and at least 2.5 years remaining maturity. As of June 28, 2024, only FAR-designated Indian Government Bonds (IGBs) with a maturity date post-December 31, 2026, will be evaluated for eligibility. Any new index-eligible FAR-designated IGBs issued during the phase-in period will also be taken into consideration for inclusion.
Currently, there are 23 Indian Government Bonds with a combined notional value of $330 billion eligible for indexing. The incorporation of these bonds into the indices is expected to diversify the investor base and contribute to increased stability in India's government bonds.
The inclusion is also projected to stabilize the local currency, the rupee, making it more resilient against global financial fluctuations. This resilience could help mitigate impacts similar to those experienced in 2013 and again in 2022 following the conflict in Ukraine.
Upon completion of the inclusion process, India is expected to achieve a maximum weight of 10% in the GBI-EM Global Diversified Index. This development is seen as a positive step towards deepening the bond market in India.
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