In a move that is set to drive billions in foreign inflows to India’s debt market, JPMorgan Chase & Co. has announced the inclusion of Indian government bonds in its benchmark emerging-market index, the JPMorgan Government Bond Index-Emerging Markets, effective from June 28, 2024. This inclusion is a result of India’s introduction of the FAR program in 2020 and substantial market reforms aimed at aiding foreign portfolio investments.
What Happened? According to a Bloomberg report, India, being the world's fastest-growing large economy, offers some of the highest returns in the region, and its addition to a major global gauge will provide global investors with greater access to these lucrative opportunities. HSBC Holdings Plc estimates that this inclusion could prompt flows of as much as $30 billion.
The anticipation of India joining international gauges has been escalating, especially as index providers are keen to diversify index constituents. With Russia falling off indices due to its invasion of Ukraine and China’s economic woes diminishing the allure of its sovereign debt, India stands out as the last significant emerging market yet to join global debt indexes like China.
Why is the move noteworthy for India? Despite the uncompromising stance of Indian authorities on changes to tax policies, support for adding India's high-yielding government bonds to the index has risen to 60% in JPMorgan’s March survey. Foreigners have increased their holdings of such bonds to almost $12 billion, anticipating the inclusion.
FTSE Russell, another major index provider, is also considering the inclusion of India's bonds in its emerging market gauge.
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The inclusion also raises the likelihood of joining the Bloomberg Global Aggregate Bonds Index, which, according to IDFC First Bank estimates, could result in additional inflows of $15-20 billion.
This inclusion is not just a testament to India’s growing economic stature but also a beacon of opportunity for investors seeking to diversify their portfolios and tap into high-return potentials.
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