India will be added to JPMorgan’s emerging market government bond index next year, paving the way for more foreign inflows to the number-five economy.
The inclusion of India will take place in June 2024. The bank said 23 Indian government bonds valued at $330 billion are eligible, and over 10 months, India is expected to reach the maximum weighting of 10%.
“Inclusion is expected to drive at least $21 billion of inflows from foreign investors, and if other index providers follow suit, the effects could be amplified further. Simply put, this will likely drive yields down for IGBs and provide some support the rupee at the same time,” said Jennifer Taylor, head of emerging market debt at State Street Global Advisors.
The yield on the 10-year Indian
BX:LDBMKIN-10Y
government bond was 7.16% on Friday.
She noted the Reserve Bank of India first started courting index providers in 2019.
The key move came in 2020 when India created its fully accessible route, or FAR, bond market, said Lee Collins, head of index fixed income at Legal & General Investment Management. He said the FAR bond issuance has added meaningful daily liquidity.
“Our view is that the [Indian] market can offer an attractive yield, volatility and maximum drawdown levels that are more akin to lower yielding, higher rated issuers such as the U.S. and China, as well as low levels of correlation to other emerging and developed market issuers,” he added.
The iShares JPMorgan USD emerging market bond ETF
EMB
has slipped 1% this year.
The S&P BSE Sensex index
IN:1
closed Friday with a small loss, but is down just 2% from its record high.
Also read: ‘Emerging markets have a China problem.’ This strategist favors India, which just hit a record.
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