JP Morgan bond index rebalancing: Borrowing costs in India to get cheaper

Index providers are 'increasingly tilted' to include India to fill the gap expected due to Russia's exclusion from JP Morgan's emerging market bond index

The chances of inclusion of India in JP Morgan's emerging market bond index are increasing ahead of its scheduled rebalancing this month, The Economic Times (ET) reported on Thursday. This is likely to lower the borrowing costs in the country.

The report said that index providers are "increasingly tilted" to include India to fill the gap expected due to Russia's exclusion.

Moreover, the Reserve Bank of India (RBI) has been taking feedback from foreign banks to better handle increased custodian flows from foreign investors. Currently, JP Morgan assigns a maximum of 10 per cent weightage to a country.

According to Goldman Sachs, India's entry could lead to Mumbai's debt market seeing inflows as high as $30 billion over time.

The RBI and banks are also discussing aspects related to the settlement of securities accounting for global market hours, registration issues and matters related to know-your-customer (KYC) norms, ET said.

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Reuters, earlier on Thursday, reported that a review from JP Morgan kept investors active.

While traders expect Indian bonds to remain an attractive bet for foreign investors, they "may not go heavily long unless there is any fresh trigger like material progress on the index inclusion front," Ashutosh Tikekar, head of global markets - India at BNP Paribas was quoted as saying by the news agency.

Foreign investors bought bonds worth Rs 4,530 crore ($545.5 million) on a net basis in August under the "Fully Accessible Route" (FAR), the biggest such purchase since May.