JP Morgan's listing of Indian bonds to trigger huge influx of investments to India
New Delhi: Indian domestic bonds are set to be incorporated into the Government Bond Index-Emerging Markets (GBI-EM) index, as well as various other indices, including specific bonds within an investment-grade-only index.
This development paves the way for a substantial influx of capital into the world's fifth-largest economy, reported Reuters.
Analysts also pointed out that this will bolster the Indian rupee amidst a weakening current account due to rising oil prices, reported Moneycontrol.
"It is a welcome development showing confidence in the Indian Economy," Ajay Seth, Secretary, the Department of Economic Affairs, said, according to the media.
According to JPMorgan, there are 23 eligible Indian Government Bonds (IGBs) with a total notional value of $330 billion.
Indian bonds will constitute a maximum of 10% in the index, and HSBC estimates potential flows of up to $30 billion, according to Moneycontrol.
To put this in context, the highest net foreign inflow into Indian bonds in 2014 was around $26 billion. Year-to-date inflows as of September 20 are approximately $3.5 billion, underscoring substantial future potential, the report said.
"We welcome this development. JPMorgan has made this decision on their own. It attests to the confidence that financial market participants and financial markets, in general, have on India's potential and growth prospects and its macroeconomic and fiscal policies. Just as long-term equity investors have been amply rewarded by investing in Indian markets, so will long-term investors in Indian government bonds be," V Anantha Nageswaran, Chief Economic Adviser to the Government of India (CEA) was quoted as saying by the media.
The inclusion process will commence on June 28, 2024, and unfold over a span of 10 months, with incremental increases of 1% in its index weighting.
This gradual approach will lead to India reaching the maximum weighting of 10%, as per JPMorgan's statement.
"The decision is the latest sign of India's growing appeal to international investors as the country's economic growth outstrips peers, its geopolitical influence grows and global companies including Apple Inc. look for alternatives to China," Bloomberg said.
"India's milestone is a stark contrast to many emerging-market peers, not least neighboring China, whose economic woes and struggling financial markets have become a source of frustration for global investors. In fact, those troubles have only burnished India's appeal," it added.
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