Indian government bonds have been included in the JPMorgan GBI Emerging Market Global Series Index for the first time ever.
It was only in April 2020 that the Reserve Bank of India (RBI) removed foreign investment restrictions on certain rupee debt. JPMorgan placed the bonds on watch for inclusion in October 2021.
As of June 28, it’s official: 27 Indian G-secs are permitted by the RBI for investments by non-resident investors, under the Fully Accessible Route (FAR) bonds. Only these FAR bonds can be added to the index and will have the index maximum 10% weight added at the rate of 1.0% per month over the next 10 months.
Indian G-Secs will have the highest duration of all index constituents of seven years and an above average yield to maturity of 7%. Among the conditions for inclusion are macro stability, fiscal prudence and economic growth.
India’s inclusion is a significant opportunity for global bond investors as they now have access to one of the worlds fastest growing major economies. Asian emerging markets weight in the JPM GBI EM index will rise to 47.5% by March 2025 from 40% now. India currently has the second largest outstanding local debt stock available to foreign investors at $415 billion, after China’s $2.2 trillion. Annual traded volume of bonds is $350 billion in India and $380 billion in China, accounting for 9.2% and 9.8% respectively of total EM traded volumes.
In anticipation of the inclusion, institutional investor positioning happened through swaps. Bond traders say that approximately $9 billion had come in prior to June 28. Emerging market bond flow data from JPMorgan showed that $4.43 billion alone went into Indian bonds from foreign investors over the month preceding the index inclusion. Between $25 billion and $30 billion of passive foreign institutional allocation will come to India because of the index inclusion.
According to JPMorgan, foreign ownership of Indian government debt is expected to rise from 2% to 4.4%. Indications are that Indian G secs will be added to other indices such as the Bloomberg EM Local Currency Government Index from January 2025.
