Indian government bond inclusion in JPMorgan-EM Bond Index to take effect on June 28; check details and impact

From June 28 (Friday), India’s sovereign bonds are slated to be included in JP Morgan’s Global bond index- Emerging Market (EM) bond index. Primarily, the country’s 23 sovereign  fully accessible route (FAR) bonds will see a place in the index worth around $330 billion.

The inclusion will however be completed over a 10-month period till March 2025. At the start, while the India bonds will carry a weightage, over the 10-month span its weightage will increase by 1 per cent every month to scale 10 per cent by the time the inclusion is done.

The announcement of inclusion of Indian Government Bonds (IGBs) to JP Morgan’s Global bond index was made in September last year.

Alongside, India’s FAR bonds will be included in the  Bloomberg EM Local Currency Indices from September this year.

How will the inclusion impact Indian markets?

On the back of the inclusion of the Indian Government Bonds, there is expected an inflow to the tune of $2000-2200 crore over a 10-month period from June 2024 to March 2025. Furthermore, since the announcement, the Indian bond market has registered a cumulative inflow of $1050 crore. 

Furthermore, as per Zee Business research desk inputs, while the holding of FIIs in Indian bonds is at 2.4 per cent, it is estimated to double by 2025. Besides it will also result in an impact over the rupee and also lower the borrowing costs.

Vishal Goenka, Co-Founder of IndiaBonds.com said P Morgan Index inclusion of Indian Government Bonds is a watershed moment for the fixed-income markets in India and very welcome.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.

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,  added Goenka.