Why It’s Good News That India Is Included In JPMorgan’s Emerging Markets Bond Index? Explained

The much anticipated move is welcomed even though JPMorgan Chase & Co. said it would include Indian government bonds (IGBs) into its benchmark Emerging Market index as of June 28, 2024. According to experts, it will provide access for foreign investors to the Indian debt market, which will strengthen the local debt market. In addition to boosting the Indian rupee, it will act as a spur for the expansion of the bond market.

The JPMorgan paper states that India “is expected to reach the maximum weight of 10% in the Global Diversified index (GBI-EM GD)”.

From June 28, 2024, through March 31, 2025, the inclusion of the IGBs will be phased in over a 10-month period, resulting in a monthly inclusion weight of 1%.

Index inclusion comes after “the Indian government’s introduction of the FAR program in 2020 and substantive market reforms for aiding foreign portfolio investments,” according to a statement from the group lead by Gloria Kim, the company’s global head of index research. The majority of benchmark investors polled (almost 75%) supported India’s inclusion in the index.

What Is the Emerging Markets Government Bond Index from JPMorgan?

A thorough benchmark for emerging market debt, the JPMorgan Government Bond Index-Emerging Markets (GBI-EM) keeps track of local currency bonds issued by major emerging market governments. It made its debut in June 2005. The index enables international investors to examine local markets more deeply in quest of a better return and more diversity.

The Index’s Inclusion Of India

Beginning on June 28, 2024, JPMorgan Chase & Co. will include Indian government bonds (IGBs) in its benchmark Emerging Market index. The JPMorgan paper states that India “is expected to reach the maximum weight of 10% in the Global Diversified index (GBI-EM GD)”.

From June 28, 2024, through March 31, 2025, the inclusion of the IGBs will be phased in over a 10-month period, resulting in a monthly inclusion weight of 1%.

Following the launch of the FAR initiative by the Indian government in 2020 and significant market changes to support foreign portfolio investments, India was included in the Index.

How Does It Affect India?

“This (India’s inclusion) has been a long-awaited measure and could be a significant boost for Indian debt markets,” said Shantanu Bhargava, managing director and head (discretionary investment services) at Waterfield Advisors. It may serve as a spark for the much-needed expansion of the bond market.

In the medium to long term, more foreign involvement may lead to lower government bond rates. The yields on corporate bonds may afterwards be progressively (medium/long term) reduced as a result.

In the long run, he said, it may result in a decrease in the cost of capital and borrowing. In the medium to long term, it may also benefit the rupee in India.

HSBC Holdings Plc claims that the inclusion might potentially result in flows of up to $30 billion.

India will be included in the GBI EM Global Diversified Index (GBI EM GD), which has an AUM of $213 billion benchmarked to it, according to a report from IDFC Bank. India will get a 10% weight, which will be applied starting in the following year (from June 28, 2024, through March 31, 2025).

According to the report, funds following the JPMorgan GBI-EM family of indexes have $236 billion in assets under management (AUM). By the end of April or May 2025, $23.6 billion might have been invested into FAR g-secs as a consequence of the index inclusion. By April/May 2025, FPI holdings of outstanding G-sec might increase to 3.4% from 1.7% in September 2024.

India is also anticipated to join other JP Morgan bond indices, including the JADE Global Diversified index, the JESG GBI-EM index, and other comprehensive suites of local currency indexes. India’s prospects of being included in the Bloomberg Global Aggregate Index have increased after its inclusion in the JP Morgan EM Bond Index, according to IDFC Bank.