JPMorgan's India bond inclusion to bolster trailing rupee

Analysts believe that India's bond inclusion in emerging market index would bring relief to the trailing rupee

The inclusion of Indian bonds in JPMorgan's much-tracked Government Bond Index-Emerging Markets (GBI-EM) would be positive for the rupee, which has been hovering near record lows, analysts said on September 22.

The rupee opened at 82.82 to a dollar against the previous day’s close of 83.09. The announcement also sent bond prices soaring, with the benchmark 10-year government bond opening at 101.15 rupees, or 7.09 percent yield, as against 100.63 rupees, or 7.17 percent yield, at close on September 21. Bond prices and yields move in opposite directions.

After a 10-year wait, JPMorgan Chase & Co said it would add Indian government bonds to its benchmark GBI-EM starting June 28, 2024 with a maximum weightage of 10 percent.

The move would strengthen the domestic currency, as passive inflows could be around $10-15 billion, independent market analyst Ambareesh Baliga said.

“The government bond yields, however, could marginally come down due to more foreign inflows in the debt market,” he added.

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In their morning update, ICICI Securities’ analysts said that India’s inclusion in the emerging market debt index would create an alternative source of financing and open up space for deepening of corporate bond issuers.

From an equity market perspective, they remain watchful of public sector unit (PSU) and PSU bank stocks.

That said, Pankaj Pathak, Fund Manager- Fixed Income, Quantum Mutual Fund, cautioned that high foreign holding of debt might expose Indian markets to external shocks.

Large inflows-outflows linked to developments in the global markets can have an outsized impact on the domestic bond and currency markets, he said.

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JPMorgan, in its note, said that around 23 Indian government bonds (IGBs) with a combined value of Rs 27 trillion were eligible. The inclusion will start June 28, 2024 and extend over 10 months with 1 percent increments on its index weightage.

The JPMorgan survey showed that around 73 percent of benchmarked investors’ were in favour of India’s inclusion in the emerging market debt index, while 17 percent were neutral and 10 percent disagreed.

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India will also be included in the Asia local currency bond index (JADE global diversified), with an expected weightage of 18.48 percent. For JADE broad diversified index, India’s weight will increase to 20 percent from 10 percent over the 10-month phasing period.

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