After JP Morgan, Bloomberg index may add India; analysts eye $20 bn inflow

Given the relatively small weight in the Bloomberg Global Aggregate Index, analysts expect India's inclusion could take place in one shot

India's chances of inclusion into Bloomberg Global Aggregate Index have risen after JPMorgan Chase & Co. decided to add Indian government bonds to the JPMorgan Government Bond Index-Emerging Markets index starting June 2024, analysts said.

"Post the inclusion into JP Morgan EM Bond Index, India’s chances of inclusion into Bloomberg Global Aggregate Index also rises. In case India is included in the Bloomberg Global Aggregate Index, it could result in inflows of $15 billion to $20 billion with India’s weight ranging from 0.6 per cent to 0.8 per cent," wrote Gaura Sen Gupta, economist at IDFC First Bank in a note.

Given the relatively small weight in the Bloomberg Global Aggregate Index, Sen Gupta expects India’s inclusion could take place in one shot, in case index inclusion takes place.

"India’s inclusion in the bond index is a step in the right direction. With the exclusion of Russia and troubles in China, the options for global debt investors have narrowed down. Hopefully, rating agencies will respect investors' viewpoint and give up on their moody and poor standards. This inclusion will deepen the bond market in India," said Nilesh Shah, managing director at Kotak Mahindra AMC.

Currency bond index

Besides the inclusion in the JP Morgan EM Bond Index, India, JP Morgan said, will be added to the Asia (ex- Japan) local currency bond index (JADE Global Diversified) over the same rebalance time frame as the GBI-EM GD with a likely weight of 18.48.

Meanwhile, for the JADE Broad Diversified index, India’s Weight, JP Morgan said will increase from 10 per cent to 20 per cent in the JADE Broad Diversified index over the 10-month phasing period. CHECK PROJECTIONS HERE

"The assets under management (AUM) of funds tracking JP Morgan GBI-EM family of indices are $236 billion. The index inclusion could result in inflows of $23.6 billion into Fully Accessible Route (FAR) g-secs starting 2024, and get completed by April/May 2025. Foreign portfolio investor's (FPI) holdings of outstanding G-sec could rise to 3.4 per cent by April/May 2025 versus 1.7 per cent in September 2024," Sen Gupta wrote.

The JP Morgan India Government Fully Accessible Route (FAR) Bonds Index tracks the performance of eligible fixed-rate, rupee-denominated Indian government bonds, which are eligible for investment to non-residents under the FAR.

Only FAR-eligible fixed-rate and zero coupon bonds are included in the JP Morgan India Government FAR Bonds Index. Bills, floating-rate and capitalisation, amortising bonds or bonds with callable, puttable or convertible features are not part of the indices.

G-Sec yields

The recent move by JP Morgan, analysts said, is expected to drive the 10-year G-Sec yields back home towards 7 per cent in the short-to-medium term, and below the 7 per cent mark by March 2024.

"The real impact on g-sec yields will be felt in fiscal 2025 (FY25), when FPI inflows related to JPM GBI EM will start. Nearly $23.6 billion of FPI inflows are expected over July 2024 to May 2025. Net G-sec supply in FY25 is likely to be Rs 12 trillion, assuming a central government fiscal deficit of 5.5 per cent of gross domestic product (GDP)," Sen Gupta said.