JP Morgan will begin including Indian sovereign bonds in its emerging market bond index from June, marking a significant development for India’s debt market. In addition, Bloomberg is seeking market consultation regarding the potential inclusion of Indian government bonds in its emerging market local currency bond indices starting in September. Under this scenario, Indian bonds would make up a substantial portion of the Bloomberg Emerging Market 10% Country Capped index, with the Indian rupee becoming the third-largest currency component in the Bloomberg Emerging Market Local Currency index. Bloomberg has invited market participants to provide feedback on the proposal, with a deadline for responses set for January 25th.
If approved, the inclusion of Indian bonds in these prominent indices could have far-reaching implications. According to Lee Collins, the head of index fixed income at LGIM, this move could be as significant as China’s inclusion in the index in 2020. He believes that JP Morgan’s decision to include Indian debt in its emerging market debt index could attract approximately $24 billion in inflows to Indian bonds. Morgan Stanley has also forecasted significant inflows into Indian bonds as a result of JP Morgan’s inclusion, potentially bringing in $24 billion.
This news comes after JP Morgan announced last September that it would be adding Indian sovereigns worth $330 billion to the JP Morgan GBI-EM Global Diversified index from June 2024. The inclusion of Indian debt in benchmarks such as JP Morgan’s EMD index is a strong indication of the growing recognition of India’s debt market on a global scale.
Furthermore, the Indian bond market has already seen increased interest from foreign investors. Reuters reported that between October and December of 2020, overseas investors purchased $4.2 billion worth of Indian sovereigns, resulting in the highest level of asset gathering for the asset class since 2017.
Despite the potential for significant inflows, Bloomberg did not propose adding Indian government bonds to its headline Bloomberg Global Aggregate index. However, Collins suggested that such a move could attract around $10 billion in inflows.
Bloomberg will continue to monitor the market and development in this regard. The consultation process will help gauge market sentiment and determine potential next steps. With a global audience in mind, this news holds relevance beyond financial markets. By providing insights into the growing recognition of India’s debt market, it showcases India’s increasing importance in the global economic landscape.
As further developments unfold, the impact of JP Morgan’s inclusion and Bloomberg’s consultation on India’s debt market will become clearer. The potential addition of Indian bonds to these prominent indices signifies a new era for Indian debt, opening up opportunities for investors worldwide.
