India to see more bond buyers move onshore as index weight rises

More global funds will register in India and directly buy the nation’s bonds once its weight in the JPMorgan Chase & Co. emerging market index rises to as much as 5% by October, overseas investors told the US bank.

Several clients of JPMorgan who have been taking proxy exposures to India via instruments such as total returns swaps and supranational bonds, will now enter the South Asian market directly, they said in a clients’ call with the bank on Monday, according to people familiar with the matter. The higher weight in the index and ensuing liquidity for bonds will be a draw for the funds, they said, asking not to be named, as the discussions in the call were private.

India got added to JPMorgan’s flagship emerging market bond index on Friday with an initial weight of 1% to be increased to 10% eventually over a 10-month period. The bank hosted the call on Monday for clients, including investors tracking the index.

A Mumbai-based spokesperson for JPMorgan didn’t immediately respond to an email seeking comments regarding the call.

A JPMorgan client survey in May showed that 49% of investors were buying India government bonds to get exposure to the country while 34% were using supranational bonds and 17% total return swaps, according to a June 25 note from the bank. The Wall Street firm expects $20-$25 billion of inflows into Indian debt as a result of the index inclusion.

Overseas investors have long complained about cumbersome documentation requirements to access Indian debt market. The country’s capital markets regulator is working to reduce paperwork for foreign investors buying only sovereign debt, Bloomberg News reported last week, citing a person with knowledge of the matter.