JP Morgan To Add Indian Gsecs In Its Emerging Markets Bond Index; How This Will Drive India's Debt Market?

American multinational and universal bank and financial services firm, JPMorgan Chase & Co. has announced the addition of Indian government securities (GSecs) to its emerging markets bond index with effect from June 2024. This long-awaited move is expected to drive India's debt market with the potential of a massive $24 billion in foreign inflows expected over the 10 months from June next year. Market experts have given a thumbs-up to the development.

As per JP Morgan, Indian GSecs will be added to the GBI-EM Global index suite, effective from June 28, 2024. It is expected to reach the maximum weight of 10% in the GBI-EM Global Diversified Index (GBI-EM GD).

Currently, there are 23 Indian government bonds with a combined notional value of $330 billion which are eligible for the index. However, the inclusion of the GSecs will be staggered over 10 months through March 31, 2025 (i.e., the inclusion of 1 per cent weight per month), JP Morgan highlighted.

How this move will drive India's debt market?

Shantanu Bhargava, Managing Director, Head of Discretionary Investment Services, Waterfield Advisors said, "The change will take effect in June 2024, and India will have a maximum weight of 10% in the index. Maximum weight could be reached by March 2025," adding, "This has been a long-awaited measure and could be a significant boost for Indian Debt markets."

Bhargava highlighted the following boost to the Indian debt market:

- Could act as a catalyst for much-needed bond market deepening.
- In the medium to long term, enhanced foreign participation could result in reduced yields on government bonds.
- That, in turn, may gradually (medium/long term) reduce the yields on corporate bonds too.
- Which in turn, could lead to a reduction in the cost of capital & cost of borrowing over the long term.
- Could have a positive impact on our currency in the medium to long run.

Sandip Raichura - CEO of Retail Broking and Distribution & Director, Prabhudas Lilladher Pvt Ltd said, "JPMorgan Chase & Co.'s decision to add Indian government bonds to its benchmark emerging-market index is a highly anticipated event that carries significant implications for the nation's debt market. With India receiving a 10% allocation in the $240 billion index, this move has the potential to attract billions of foreign inflows."

Raichura added that India could expect to receive close to $24 billion in foreign inflows over a 10-month period starting from June 24. In fact, foreign portfolio investors (FPIs) are already entering the Indian fixed-income market in anticipation of this inclusion. This inclusion is considered a major positive, as it will absorb more than 15% of the net supply of Government Securities (GSEC) for FY 25.

Furthermore, Raichura said, "It is expected to reset historical spreads by 20-25 basis points downwards, resulting in a lower capital cost of borrowing for India. Additionally, the increase in forex reserves will contribute to an improved external fundamental situation for the country."

Calling JP Morgan's move very positive from the perspective of the Indian economy and capital market in particular, Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services also said, "Most of the corporate bonds yields are benchmarked to the yields on government bonds. Therefore, yields will decline pan India, across industries. The decline in the cost of capital will translate into higher profits for the corporate sector, which, in turn, will boost stock prices enabling the stock market to scale higher levels."

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.