Indian Govt Bonds, JP Morgan | On Friday-June 28, India joins the JP Morgan Global Bond Index – Emerging Markets (GBI – EM) Global Series of indices. The inclusion will happen in a phased manner over 10 months. The domestic bonds will hold 10% weightage in the index and there will be an increase of one percentage point every month, with a starting weight of 1%. The maximum weight of 10% is expected to be reached by March 31, 2025.   

There’s a condition in inclusion that only bonds classified under the Fully Accessible Route (FAR) will be eligible for index inclusion. Within this subset of bonds, there are currently 28 FAR-designated bonds that meet the index inclusion criteria (7.18% Aug-33 set to have the highest weight).

JP Morgan Global Bond Index – Emerging Markets- Advantage India 

Upon inclusion, India will have the single highest duration across the index (at 7.03 years), with an above-average yield-to-maturity, at 7.09%. There has been a notable increase in investor interest after the announcement in September 2023 that India’s local bonds will be included in the J.P. Morgan GBI-EM Global series starting June 2024.

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Interestingly, the non-resident inflows into the Indian government bonds have totaled $8.1 billion since October-23. Some estimates suggest that 32-40% of the expected total of $20-25 billion of index-related inflows to India have already been factored in. The inclusion will make India the second biggest EM country in the index after China.  

According to experts, over the medium-to-long term, inclusion in global bond indices should lead to lower borrowing costs. Yields on govt bonds should reduce by at least 15-20 basis points making it cheaper for the government to borrow capital. It would encourage more infrastructure and development spending in the economy. 

What’s going to be the impact on Corporate Bonds

The government bonds inclusion will also impact corporate bonds especially AAA rated bonds, which are likely to see a contraction in yields. Borrowing costs hence for corporate borrowers is likely to reduce, which in turn has a positive multiplier effect on the economy, said Nikhil Aggarwal, Founder & CEO of Grip Invest.

What’s going to be the impact on Rupee

As per data from NSDL, for this calendar year FPI net inflows in debt have been about $9 billion. While FPI inflows in equity have been net negative Come from Sports betting site VPbet . For 2023, FPI inflows in equity were 3 times inflows in debt. According to Aggarwal, this change has in part come from the inclusion in the JP Morgan Bond Index. “These inflows are very material and will help strengthen the rupee including as a counter weight to any FPI outflows in the equity market,” he said.