Indian government bonds to be included JP Morgan Govt bond Index from June 28

Indian Government Bonds are set to be included in the JP Morgan Government Bond Index, Emerging Market (GBI-EM) from June 28. The inclusion will take place over a period of 10 months starting June 28, 2024, through to March 31, 2025.

India will have a 1% weightage in the JPMorgan Emerging Market (EM) Bond index, which will gradually rise to 10% over a 10-month period, at an inclusion rate of about 1% weight per month. The inclusion is estimated to bring $20-25 billion of inflows into the Indian bond market. However, India's index-eligible bonds have already attracted $10 billion since the inclusion was announced in September last year.

On September 21, 2023, Global index provider JPMorgan announced that it would include Indian government's bonds in its emerging market indices.

Only Indian government bonds issued by the Reserve Bank of India (RBI) under the Fully Accessible Route (FAR) will be included in the indices. All FAR-designated IGBs maturing after December 31, 2026, will be eligible to be included in the JPMorgan Emerging Market (EM) Bond index. In the post-monetary policy press conference on June 7, RBI Governor Shaktikanta Das said the central bank is not worried about the big foreign fund inflows from global bond inclusion.

"The RBI has a number of instrumentalities to manage the flows. We have managed it in the past and we will manage it in future also. No worries on that," Das said.

Experts believe the index inclusion-related heavy flows is likely to boost demand for Indian government securities in the current fiscal, once short-term liquidity issues in certain papers get sorted. Vishal Gupta, Co-founder of IndiaBonds.com says the inclusion of Indian government bonds in JP Morgan Index is a watershed moment for the fixed-income markets in India.

"This compulsorily puts Indian bond markets on the radar of global bond investors and although initial investments are supposed to be to the tune of $25-30 billion, index inclusion paves the way for this number to keep growing in the next few years," said Vishal Gupta.

Gupta further added that it is important to grow the investor base for any market, and index inclusion helps in expanding the number of players, which further benefits everyone in the form of additional market liquidity.

"Global investors have been looking to allocate capital to emerging markets given their reluctance to invest in other large countries like Russia or China in the past couple of years. Hence, the timing of this index inclusion is also almost perfect.

I reckon investments will start via government bonds initially, but filter into AAA to lower credit ratings as well in the years to come", he continued.