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JP Morgan to Add Indian Government Bonds to Emerging Market Benchmark

In a significant development, JP Morgan Chase & Co. is set to include Indian government bonds in its renowned benchmark emerging-market index. This long-anticipated move is expected to attract substantial foreign investments into India’s debt market.

Index Inclusion Date and Weightage

  • The inclusion of Indian government bonds in the JP Morgan Government Bond Index-Emerging Markets is scheduled to take effect from June 28, 2024.
  • India will have a maximum weight of 10% on this index, as outlined in a statement.

Rationale for Inclusion

  • JPMorgan’s decision to include Indian government bonds in its index is attributed to India’s introduction of the FAR (Fully Accessible Route) program in 2020 and its substantial market reforms aimed at facilitating foreign portfolio investments.
  • A survey conducted among benchmark investors revealed that nearly three-quarters of respondents supported India’s inclusion in the index.

Impact on India’s Economy and Foreign Inflows

  • India’s addition to this prominent global index will provide global investors with greater access to the world’s fastest-growing major economy, which has consistently offered some of the highest returns in the region.
  • Experts estimate that this inclusion could lead to foreign inflows of up to $30 billion, according to HSBC Holdings Plc.
  • The anticipation of India’s inclusion has already prompted foreign investors to increase their holdings of Indian government bonds, with holdings rising from nearly $7.4 billion at the end of 2022 to almost $12 billion.

Global Index Diversification

  • The move to include India in the index reflects a broader trend among index providers seeking to diversify their index constituents. Factors such as Russia’s invasion of Ukraine and China’s economic challenges have led to shifts in index compositions.
  • India was notably the last significant emerging market to be absent from global debt indexes before this inclusion.

Challenges and Policy Changes

  • India’s authorities had been cautious about making changes to tax policies to facilitate the inclusion of Indian government bonds in global indexes. In contrast, countries like Korea have taken steps to enhance foreigners’ access to their markets.
  • Nevertheless, JPMorgan reported a growing level of support for including India’s index-eligible, high-yielding government bonds, with approval rising to 60% in their survey, up from 50% in the previous year.

Potential Future Developments

  • FTSE Russell, another major index provider, is also considering including Indian bonds in its emerging market gauge, indicating the increasing attractiveness of India’s debt market.

Other Developments in Emerging Markets

  • Egypt has been placed on negative watch by JPMorgan due to reported currency repatriation challenges faced by investors. The country’s eligibility for index inclusion will be evaluated over the next three to six months.

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