India Local Government Bonds Added To JP Morgan Index: Trigger Billions Inflows

Ruby Thakur
September 23, 2023
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JP Morgan Said It Will Include Indian Government Bonds In Its Widely Tracked Emerging Market Debt Index. This Inclusion Is Likely To Prompt Billions Of Dollars Of Inflows Into The World’s Fifth-Largest Economy.

India Local Government Bonds Added To JP Morgan Index: Trigger Billions Inflows

Why In News

JP Morgan Said It Will Include Indian Government Bonds In Its Widely Tracked Emerging Market Debt Index. This Inclusion Is Likely To Prompt Billions Of Dollars Of Inflows Into The World’s Fifth-Largest Economy.
It Will Include Indian Government Bonds To Its Emerging Markets Bond Index From June 2024, A Much-Anticipated Move Which Could Attract More Foreign Flows Into The Domestic Government Securities Market.

When Will It Start

The Process Of Inclusion Is Set To Commence On June 28, 2024, And Will Span A Duration Of Ten Months.
During This Period, There Will Be Incremental Increases Of 1 Per Cent In India’s Index Weighting, Ultimately Reaching The Maximum Allocation Of 10 Per Cent.

JP Morgan Index

The JP Morgan Emerging Market Bond Index Are A Set Of Three Bond Indices To Track Bonds In Emerging Markets Operated By J P Morgan.
This Index Is Closely Followed By Global Funds, With Approximately $236 Billion In Assets Benchmarked Against It.
The Indices Are The Emerging Markets Bond Index Plus, The Emerging Markets Bond Index Global And The Emerging Markets Bond Global Diversified Index.

Weightage Assigned To India

India, Which Will Be Included In The GBI-EM Global Index Suite Starting June 28, 2024, Is Expected To Reach The Maximum Weight Of 10 Per Cent In The GBI-EM Global Diversified Index (GBI-EM GD).
Inclusion Of The Bonds Will Be Staggered Over 10 Months Through March 31, 2025.

Impact On India

The Move Has Significant Implications For India’s Economy And Global Investors, As It Paves The Way For Inflows Worth Billions Of Dollars Into The World’s Fifth-Largest Economy.
23 Indian Government Bonds Are Eligible To Be Included In The Index. These Bonds Have A Combined Notional Value Of $330 Billion.

India’s Weight Is Expected To Reach The Maximum Weight Threshold Of 10 Per Cent In The GBI-EM Global Diversified, And Approximately 8.7 Per Cent In The Gbi-Em Global Index,”
This Will Reset The Base Rate For India And The Yield Should Come Down Sharply. India’s Cost Of Borrowing Will Come Down. Since Covid-19, The Fiscal Deficit In India Has Remained Elevated Due To Higher Borrowing.
This Event Will Ease Borrowing Pressure As A Large Part Of The Borrowing Will Be Observed By This Route.

The Announcement Has Given A Boost To The Indian Rupee As Well when there is a demand for investors to buy Indian government bonds denominated in rupees then naturally the demand for rupees will increase

This Means Local Government Bonds Will Be Included In The GBI-EM Index And The Index Suite, Which Is Benchmarked By Approximately $236 Billion In Global Funds.

Potential For Further Investments

The Inclusion Of Indian Bonds In JP Morgan’s Index Could Encourage Other Investors And Institutions To Follow Suit, Leading To Increased Foreign Investment In Indian Bonds.

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Ruby Thakur

General Studies Lecturer SSBCrackExams, BSc In PCM, Trained Students For State Services Exams. Expertise in Geography ,Polity & Current Affairs. Love Travelling.