Indian govt bonds are now part of JP Morgan's index. What it means

Indian government bonds have been included in JP Morgan's emerging markets index, which will benefit the economy.

This inclusion is set to bring billions of dollars in investments, opening up a Rs 1.3 trillion market to a broader range of global investors.

Since JP Morgan's announcement in September, nearly Rs 11 billion has already flowed into eligible bonds. The bank anticipates an additional Rs 20-25 billion in the next ten months, potentially increasing foreign ownership of Indian bonds from 2.5% to 4.4%.

India's debt market is gaining popularity among investors, with both sovereign and corporate bonds set for a sixth straight quarter of foreign investments, a streak not seen in over a decade, according to Bloomberg.

The JP Morgan Emerging Market Bond Index, established in the early 1990s, is the most widely referenced index for emerging market bonds.

It started with the issuance of the first Brady bond and has since expanded to include the Government Bond Index-Emerging Markets and the Corporate Emerging Markets Bond Index.

Only Indian Government Bonds issued under the Reserve Bank of India's 'Fully Accessible Route' (FAR) are eligible for inclusion in the indices.

These bonds must have a minimum outstanding amount of over Rs 1 billion and at least 2.5 years of residual maturity, making all FAR-designated IGBs maturing after December 31, 2026, eligible.

India's inclusion in the JP Morgan Emerging Market Global Diversified Index is expected to result in Rs 23.6 billion in inflows into FAR bonds. Foreign Portfolio Investor (FPI) holdings of outstanding FAR bonds could rise to 3.4% by April/May 2025.

The inclusion of Indian government bonds will likely reduce the weights of Thailand, Poland, and the Czech Republic in the JP Morgan Emerging Market Bond Index over the next ten months.

Since the announcement on September 21, 2023, Indian government bonds have seen Rs 10.4 billion in inflows, compared to just Rs 2.4 billion in the first eight months of 2023 and annual foreign outflows of around Rs 1 billion in 2021 and 2022.