ICICI Bank Ltd predicts that India’s bond markets could witness inflows of up to $10 billion even before JPMorgan Chase & Co. adds Indian debt to its emerging market index in mid-2024.
As markets anticipate the inclusion of Indian debt in other indexes, such as the Bloomberg Global Aggregate, the flows could potentially reach $50 billion by the end of the next year, according to B. Prasanna, Group Head for Global Markets Sales, Trading, and Research at ICICI Bank.
JPMorgan recently announced its plan to phase in India’s bonds starting from June 2024, eventually allowing the nation’s debt to account for up to 10 percent of the index. This move is expected to drive yields lower, aiding Prime Minister Narendra Modi in funding record borrowings ahead of next year’s national elections.
Prasanna noted that although Indian bonds haven’t seen gains since the announcement, they have performed relatively well and have withstood global macro pressures, including rising crude prices and US Treasury yields.
He further suggested that Indian yields could drop to around 7 percent levels once passive inflows commence and global headwinds ease, particularly when crude prices cool off and the Federal Reserve adopts a less hawkish stance.
On Thursday, the yield on the 10-year bond rose by five basis points to 7.22 percent.
Regarding the Indian rupee, which has been hovering near its record low, Prasanna anticipates it will trade within a range of 82-84 against the US dollar. He added that the Reserve Bank of India (RBI) will continue to accumulate US dollars and won’t allow significant appreciation of the local currency.
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