The pros and cons of India making it to JPMorgan EM bond index 

The 10-year bond yield fell for 6 basis points to hit a two-month low of 7.101 percent from its previous close of 7.163 percent. Bond yield and prices move in opposite directions.

There's widespread excitement about India's inclusion in JPMorgan's Global Bond Index-Emerging Markets (EMs). The news has been mostly greeted with positive views as it will shore up the rupee and will enhance market liquidity. However, some believe that higher foreign holding of Indian bonds could spell some trouble.

Also read: JPMorgan is adding India to its emerging-markets bond index

According to Pankaj Pathak, Fund Manager- Fixed Income, Quantum Mutual Fund, high foreign holding of debt might expose Indian markets to external shocks. Additionally, large inflows-outflows linked to developments in the global markets can have an outsized impact on the domestic bond and currency markets.

“Additional safeguard measures will have to be deployed to deal with any such external shocks,” he said.

However, he believes the pros outweigh the cons as inclusion in the JPMorgan GBI-EM Index could attract both passive and active flows. “Apart from exchange-traded funds or ETFs, even active investors will be more comfortable investing in India when it becomes part of the index.”

Also read: JPMorgan inclusion improves chances of Indian bonds getting into Bloomberg index

Pramod Gubbi of Marcellus Investment, too, agrees. Gubbi said that he expects an increase in flows and demand for Indian bonds in the coming days and a lower of cost of borrowing for Indian businesses.

“This will have a positive implication for the economy as lower cost of capital will in turn benefit other asset classes including equities as value shifts from debt holders to equity holders,” he said. Gubbi added that this is coming at a good time for India, when emerging markets like China are struggling.

ICICI Bank’s B Prasanna in conversation with CNBC TV18 said that this was “big development”. Prasanna added that if India gets included all three bond indices – JPMorgan EM index, FTSE EM index, and the Bloomberg Barclays EM bond index  –  we could see passive inflows of $40-50 billion.

Harsha Upadhyaya of Kotak AMC also believes that the inclusion will make Indian economy more resilient. Potential foreign inflows into Indian debt will expand the source of foreign capital which in turn will strengthen India’s balance of payment situation and deepen the market for the Indian rupee.

Soon after JPMorgan’s announcement, the Indian rupee and 10-year bond prices jumped at open. The domestic currency opened at 82.83, appreciating from its previous close of 83.09.

The 10-year bond yield fell for 6 basis points to hit a two-month low of 7.101 percent from its previous close of 7.163 percent. Bond yield and prices move in opposite directions.

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