The Reserve Bank of India (RBI) Governor Shaktikanta Das on October 31 said the inclusion of Indian government securities in the JP Morgan emerging market index is a vote of confidence in the Indian economy.
“Inclusion of JP Morgan bond index is their decision. It's a vote of confidence about the Indian economy and on our financial markets,” Das said at a Business Standard BFSI Insight Summit.
Das further said that the central bank’s effort over the last few years has been to expand the investor base in the securities market and increase participation.
JPMorgan said on September 22 that it would include Indian government bonds in its widely tracked emerging market index starting June 28, 2024. The inclusion of India’s sovereign bonds can potentially draw $30 billion of foreign inflows into the country.
The decision has significant implications for India's debt market and global investors, with India's weight in the index limited to a maximum of 10 percent and eligible government bonds valued at $330 billion, analysts said.
Moneycontrol reported on September 27 that Indian banks are likely to focus more on government securities of lower duration in the coming days to book healthy gains on them and manage duration risk.
Once Indian government securities are added to the global bond index, there will be additional inflows from foreign investors that will increase demand for bonds, leading to an increase in prices. Bond prices and yields move in opposite directions.
In addition, expectations of a rate cut in the next financial year will help lower-duration bonds as their yields react much faster than longer-tenure bonds, money market dealers said.
Earlier today, Moneycontrol reported that the domestic market is hopeful that Bloomberg will add Indian government securities to its bond index soon, spurred by optimism over reviews scheduled in October and November on their “potential eligibility” for inclusion.
There is a high probability of this because the members of the Bloomberg Fixed Income Index Advisory Councils are the same as those on JPMorgan’s Advisory Council, according to market sources. JPMorgan will include Indian government securities in its Global Government Bond Index-Emerging Markets in June.
“Mostly, the FAR securities will be included because there are no restrictions for foreign portfolio investors in such securities,” one person said, referring to the Fully Accessible Route (FAR) category introduced in March 2020, which allows non-residents to invest in certain government securities without limits.
The experts also said if Indian government bonds are included in the Bloomberg index, they would carry a 0.7-0.8 percent weightage.
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