Rama Krishna Sangem
In a good news to India, now our country officially became part of JP Morgan‘s Government Bond Index-Emerging Markets (GBI-EM). This move, with effect from June 27, follows an announcement made in September, setting the stage for significant financial inflows into the world’s fifth-largest economy.
Starting today, Indian Government Bonds (IGBs) will begin to be included in the index, with a one-per-cent weight being transferred initially. This weight will increase by one percentage point each month until it reaches a cap of 10 per cent by March 31, 2025. As a result, India will join the ranks of China, Indonesia, and Mexico, each with a maximum cap of 10 per cent in the JP Morgan Global Bond Index – Emerging Market Global Diversified Index.
Foreign investors have already directed around $10 billion into securities eligible for the index since the announcement. Goldman Sachs projects at least $30 billion more in inflows as India’s index weighting rises to 10 per cent. This steady increase is likely to keep Indian bond prices strong.
The JP Morgan Emerging Market Bond Index (EMBI), created in the early 1990s, is the most widely referenced index for emerging market bonds. It began with the issuance of the first Brady bond and has since expanded to include the Government Bond Index-Emerging Markets (GBI-EM) and the Corporate Emerging Markets Bond Index (CEMBI).
These indices have become benchmarks for local market and corporate EM bonds. Region-specific indices, such as the JP Morgan Asia Credit Index (JACI), the Russia Bond Index (RUBI), and the Latin America Eurobond Index (LEI), provide further coverage.
This means, India will get more funds
The JP Morgan Emerging Market Global Diversified Index manages about $213 billion in assets globally. India’s 10 per cent weight in the index is expected to attract $21 billion (Rs 1.7 trillion) in investments by March 31, 2025, assuming investors initially had zero weight in Indian bonds.
This inclusion could prompt other EM index providers, like Bloomberg and FTSE, to consider adding India, potentially leading to additional inflows into the economy.
Only Indian Government Bonds (IGBs) issued under the Reserve Bank of India’s ‘Fully Accessible Route (FAR)’ are eligible for inclusion in the indices. These bonds must have a minimum outstanding amount above $1 billion and at least 2.5 years of residual maturity, making all FAR-designated IGBs maturing after December 31, 2026, eligible.
This development will bring more foreign funds into India in the coming days.
