India will have a maximum weight of 10 per cent on the index.
Global investment bank JPMorgan Chase and Co. on Thursday announced that it would be adding India to its emerging market debt index with effect from June 28, 2024.
While the much-anticipated decision is widely seen as a big positive for the Indian debt market, here’s a detailed look at exactly what it means for investors.
What is the JPMorgan emerging market debt index?
The JPMorgan emerging market debt index is officially called the JPMorgan Government Bond Index-Emerging Markets (GBI-EM) index. On its official website, JPMorgan said that it has led investors towards higher-yielding local rates by launching the GBI-EM series which has become the new standard for local market benchmarks.
As of August 1, 2023, the index included government debt securities from countries like China, Malaysia, Philippines, Czech Republic, Hungary, Poland, Romania, Serbia, Turkey, Brazil, Colombia, Dominican Republic, Mexico, Peru, Uruguay and South Africa.
What JPMorgan said on Thursday?
On Thursday, JPMorgan announced that the index provider will add Indian securities to the JPMorgan GBI-EM index starting June 28, 2024. Currently, 23 bonds worth a combined notional $330 billion are eligible to be added to the index.
India will have a maximum weight of 10 per cent on the index. Inclusion will be staggered over 10 months at roughly 1 per cent weight per month.
What does it mean for India?
The move is widely being seen as a big positive for India’s debt market as it would likely attract billions of foreign inflows.
HSBC Holdings Plc in a recent note said that giving global investors greater access may prompt flows of as much as $30 billion in the Indian debt market. Notably, foreign investors have bought $3.5 billion worth of Indian government debt this year, according to data compiled by Bloomberg.
Emkay Global Financial Services said in a report that the inclusion of India in JPMorgan’s GBI-EM index will lower the country’s risk premia/cost of funding, enhance the liquidity and ownership base of government securities, and help India finance its fiscal and current account deficit. This will also imply more accountable fiscal policy-making ahead, it added.
In the near term, Emkay expected bond yields and the Indian rupee to reverse gains after the initial euphoria, tracking global markets. However, the trend is likely to reverse again in favour of bonds by end-March 2024, with 10-year yield coming off well below 7 percent, it added.
