This is good news for India. After many years of waiting, India has joined JP Morgan’s emerging market bond index. JP Morgan Chase & Co. has decided to add Indian government bonds to its highly regarded emerging market debt index. The securities will be added on June 28, 2024.

JP Morgan added that the inclusion will be extended to 10 months with a 1% index weight increase, with India expected to reach a maximum weight of 10%. According to JP Morgan, “India’s weighting is expected to reach the maximum weight threshold of 10% in the GBI-EM Global Diversified Index (GBI-EM GD) and approximately 8.7% in the GBI-EM Global Index.” In March, JP Morgan previously reported, that support for indexable, high-yield government bonds from India increased from 50% to 60% in its survey compared to last year.

Impact on Indian Economy

JP Morgan’s emerging market debt index has the potential to strengthen the rupee and reduce the government’s borrowing costs, according to V. Anantha Nageswaran, chief economic adviser at the finance ministry. Nageswaran said annual inflows into Indian government bonds could likely be $20 billion to $25 billion. Nageswaran said that while this development could lead to volatility in the Indian bond market and currency at a time of global uncertainty, the benefits of such inclusion would far outweigh the risks in the long run.

“If there is a demand from investors to buy rupee-denominated Indian government bonds, then of course the demand for rupees will increase and all else being equal, there is a possibility of nominal appreciation of the rupee,” he said. He said foreign investors are likely to benefit from investing in India. “Just as portfolio investors in the stock markets in India have benefited from their investments in Indian equities over the last 30 years, even in dollar terms on a risk-adjusted basis, we believe that long-term patient investments in Indian government securities will also benefit.” to generate economic returns,” said Nageswaran.

Another benefit of inclusion will be lower borrowing costs and expected inflows between June 2024 and March 2025, which will support the Indian currency against the dollar and volatility in the recent global commodity market. However, experts believe the immediate impact could affect sentiment in global markets in the short term, even as they call it a joy in the long run.

The Reserve Bank of India (RBI) on Friday announced the upcoming weekly auctions for government securities and state development loans (SDLs). Three-month, six-month and 364-day T-bills all have preliminary yields of 6.86%, 7.06% and 7.07%, respectively. This time, 12 states – Rajasthan, Punjab, Manipur, Madhya Pradesh, Kerala, Tamil Nadu, Haryana, Gujarat, Goa, Chhattisgarh, Bihar and West Bengal – will participate in SDL auctions. The highest interest rate, 7.46%, is offered on Chhattisgarh SDLs maturing on September 27, 2030. State governments are expected to sell SDLs worth Rs 27,000 crore at the September 26 auction, as against the planned market uptake of Rs 26,700 crore, according to Rockfort data.

Meanwhile, FTSE Russell, another major index provider, is looking to add Indian bonds to its emerging market index. It is expected to bring billions of dollars to the world’s fifth-largest economy.

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