The global investment bank JPMorgan Chase and Co. on Thursday announced that it would add India to its emerging market debt index as of June 28th, 2024.
While the highly 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.
The JPMorgan Government Bond Index-Emerging Markets index is officially called the JPMorgan emerging market debt index. JPMorgan said on its official website that it has directed investors towards higher-yielding local rates by launching the GBI-EM series, which has become the new standard for local market benchmarks.
The index included government debt securities from countries such as China, Malaysia, Philippines, the Czech Republic, Hungary, Poland, Romania, Serbia, Turkey, Brazil, Colombia, the Dominican Republic, Mexico, Peru, Uruguay and South Africa as of August 1, 2023.
What did JPMorgan say on Thursday?
On Thursday, JPMorgan announced that it will add Indian securities to the JPMorgan GBI-EM index starting June 28th, 2024. Currently, 23 bonds worth a combined notional $330 billion are eligible to be added to the index.
The index is expected to have a maximum weight of 10 per cent. Inclusion will be staggered over 10 months at around 1 per cent weight per month.
The move is widely viewed as a positive boost for India's debt market as it would likely attract billions of foreign inflows.
In a note issued yesterday, HSBC Holdings plc said that giving global investors greater access may prompt flows of as much as $30 billion in the Indian debt market. In addition, foreign investors have bought $3.5 billion worth of Indian government debt this year, according to data compiled by Bloomberg.
This will also imply more accountable fiscal policy-making ahead, it said, adding that the government's fiscal policy-making will be more accountable.
In the near term, Emkay anticipated 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 favor of bonds by end-March 2024, with the 10-year yield coming off well below 7 percent, it added.