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Sep 12, 2013, 03.05 PM IST | Source: Reuters

How India wins by entering global debt indexes

India will, however, have to do away with the foreign fund investment limits in government debt, currently capped at USD 30 billion, which is a key criteria for inclusion in such indexes as the market otherwise is considered restrictive.

How India wins by entering global debt indexes

India's inclusion in popular government bond indexes such as the JP Morgan's Government Bond-Emerging Markets-Global Diversified index could attract about USD 20 billion-USD 40 billion in over a year, Standard Chartered Bank writes in a note on Thursday.

India will, however, have to do away with the foreign fund investment limits in government debt, currently capped at USD 30 billion, which is a key criteria for inclusion in such indexes as the market otherwise is considered restrictive.

The bank said the move would help the rupee and the debt market while also easing balance of payments concerns. It will result in foreign fund outflows from Turkey, Indonesia, Thailand and Hungary, they added. Standard Chartered expects India to have around 10 percent weight in the index eventually, though it may be assigned a lower weightage in the beginning.

Also Read: ETFs now investing in India; bullish on cement, says ICICI Sec

The investment bank says Indian policymakers' belief that high foreign ownership would lead to elevated bond-market volatility may be unfounded as research across 14 EM countries shows only a weak relationship between these two factors.

The bank expects India's inclusion to firstly help bond markets by bringing in inflows from a wider investor base, deepen the market, and boost the rupee while also helping the economy at large.

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