Inclusion of Indian bonds in JP Morgan and Bloomberg indices proof of strong Indian economy: Expert

On January 8, Bloomberg Index Services proposed the addition of eligible Indian bonds to its local currency index for emerging markets starting in September.

This potential inclusion could result in significant capital inflows in India. This proposal follows JPMorgan's announcement on September 22 to incorporate India into its widely monitored followed market debt index, effective from June.

“We are already witnessing a growing interest in bonds from domestic non-institutional investors and the targeted international investments will further enhance the depth and strength of our fixed-income markets,” Goenka said.

As early as 2013, the Indian government started discussions for the incorporation of its securities into global indexes. However, impediments arose due to restrictions on foreign investment in domestic debt.

In April 2020, the Reserve Bank of India addressed this issue by introducing securities exempt from foreign investment restrictions, operating under a mechanism known as the "fully accessible route" (FAR).

With a 10-year bond yield of 7.17%, India has emerged as an attractive destination for the allocation of investment amongst the emerging markets in Asia with foreign investors owning around 2% of the government bonds, Goenka said.

“With this, global investors will be able to invest in 23 Indian Government Bonds whose combined value is around $330 billion, he notes.

The development has potential to generate USD 25-30 billion of foreign investments into Indian bonds over the next 12 months increasing liquidity and demand for Indian sovereign bonds, consequently leading to lower yields and reduced borrowing costs for the Indian government, according to Goenka.

The inclusion in turn should also reduce corporate borrowing rates in the future, he underscores, adding that this can bolster India's position in the global financial landscape and help achieve the $5 trillion economy goal by 2030.