Given that Indian government bonds are included in JPMorgan Chase & Co.’s esteemed emerging markets index, India is expected to see a substantial influx of investors. It is anticipated that this action, which opens up a $1.3 trillion market to a wider spectrum of foreign investors, will infuse billions of dollars into the nation.
Roughly $11 billion has been invested in qualifying bonds since JPMorgan’s announcement in September. Over the following 10 months, the bank expects to see an additional $20–25 billion in investments, which could raise foreign ownership of Indian bonds from 2.5% to 4.4%.
According to Bloomberg, investors are showing interest in India’s debt market, with both corporate and sovereign bonds drawing in foreign capital for the sixth straight quarter, a trend not seen in more than ten years.
The most frequently cited index for emerging market bonds is the JP Morgan Emerging Market Bond Index (EMBI), which was created in the early 1990s. Since the first Brady bond was issued, it has grown to include the Corporate Emerging Markets Bond Index (CEMBI) and the Government Bond Index-Emerging Markets (GBI-EM).
These indices can only contain Indian Government Bonds issued through the Reserve Bank of India’s “Fully Accessible Route” (FAR). These bonds need to have a residual maturity of at least 2.5 years and a minimum outstanding amount of above $1 billion. As such, all IGBs designated under the FAR that mature after December 31, 2026, are eligible for inclusion. It is anticipated that $23.6 billion will enter FAR bonds as a result of India’s inclusion in the JP Morgan Emerging Market Global Diversified Index. By April/May 2025, holdings of these bonds by Foreign Portfolio Investors (FPIs) could increase to 3.4%.
Over the course of the next ten months, the JP Morgan Emerging Market Bond Index is anticipated to see a decrease in the weights assigned to Thailand, Poland, and the Czech Republic due to the addition of Indian government bonds. $10.4 billion has flowed into Indian government bonds after the announcement on September 21, 2023; this compares to $2.4 billion in the first eight months of 2023 and approximately $1 billion in yearly foreign outflows in 2021 and 2022.
The fifth-largest economy in the world, India, is expected to receive significant financial inflows following its official admission into the JP Morgan Government Bond Index-Emerging Markets (GBI-EM). This will increase monthly by one percentage point from the initial one percent weight to a maximum of ten percent by March 31, 2025. India will thus be included in the JP Morgan Global Bond Index-Emerging Market Global Diversified Index alongside China, Indonesia, and Mexico.
As India’s index weighting increases to 10%, Goldman Sachs predicts at least $30 billion more in inflows, which will maintain the strength of Indian bond prices. This addition would encourage Bloomberg and FTSE, two other producers of EM indexes, to think about including India as well, which could result in more capital inflows.
