NEW DELHI (Reuters) – JPMorgan will include India in its widely followed index of emerging market debt, paving the way for billions of dollars in flows into the world’s fifth-largest economy and helping it fund its current account. And the financial deficit.
JPMorgan said on Friday that Indian domestic bonds will be included in the Government Bond Index for Emerging Markets (GBI-EM) and index pool, which is measured at about $236 billion in global funds.
The decision represents an important moment for India, one of the fastest growing major economies in the world, which has embarked on a major campaign to raise its profile in international financial markets.
JPMorgan said 23 Indian government bonds (IGBs) with a combined notional value of $330 billion, all of which fall under the “fully accessible route” for non-residents, are eligible.
“India is expected to have a maximum weight of 10% in the GBI-EM Global Diversified Index (.JPMGBIEMGD), and approximately 8.7% in the GBI-EM Global Index,” JPMorgan said.
The yield on Indian 10-year bonds fell seven basis points to a two-month low of 7.0788 percent in opening trade, but fell to 7.12 percent by 0700 GMT, while the rupee rose 0.3 percent early to 82.25 to the dollar before giving up some of its gains. For trading. At 82.93.
India’s chief economic advisor V. Anantha Nageswaran: “We welcome this development.”
“This attests to the confidence of financial market participants and financial markets in general in India’s potential, growth prospects and its macroeconomic and financial policies,” he added.
JPMorgan said the listing will begin on June 28, 2024, and extend over 10 months with 1% increases to its index weight, with India expected to reach the maximum weight of 10%.
“Besides the near-term euphoria, this should bode well structurally for interest rates and FX markets, bringing down the cost of borrowing for the economy overall and making fiscal policy-making more flexible,” said Madhavi Arora, chief economist at financial services firm Emkay Global. liable to accountability.” .
However, India’s inclusion will lead to outflows elsewhere, with the weight of local government bonds issued by other countries shrinking: Thailand will see the largest losses at 1.65 percentage points, while South Africa, Poland, the Czech Republic and Brazil will see a decline of 1.-1.36 percentage points. Celsius, according to JP Morgan.
Talks began in 2019
India began talks on including its debt in global indices in 2019, while also speaking to Euroclear about clearing and settlement.
It removed foreign investment restrictions on certain government securities in 2020 as part of an effort to enter global bond indices with many bonds now part of a “full access route” without any restrictions on foreign investment.
But the government’s position on other issues, including capital gains taxes and local settlement, has delayed its inclusion, although it has not actually budged on its position.
“It would be reasonable to expect inflows to start from now, which in the meantime helps balance the gap between supply and demand in the balance of payments,” said Rahul Bajoria, managing director and head of emerging market economics in Asia (ex China) at Barclays.
“We think a total of $20 to $25 billion should come in over the index inclusion horizon, but some front-loading is reasonable.”
Index provider FTSE Russell, which has India on its watch list for inclusion in the FTSE Emerging Markets Government Bond Index, will announce its decision on September 28.
Foreign investors’ buying of Indian bonds has remained tepid, with net purchases at $3.4 billion so far in 2023, and foreign investors own less than 2% of outstanding government debt. According to Morgan Stanley calculations, this may now rise to 5%.
“This announcement is a major positive for INR bonds in the short term as investors look to pre-empt the eventual listing process,” analysts at DBS said in a note on Friday.
In the same announcement, JPMorgan said Egypt’s eligibility for the GBI-EM series would be subject to review for three to six months, due to reports of “material” obstacles in repatriating the currency.
“If the obstacles mentioned by benchmark investors persist, a review of Egypt’s status will be conducted to remove Egypt from the GBI-EM series,” JPMorgan said.
Egypt will remain in the index during the review.
(Additional reporting by Rodrigo Campos in New York and Karen Strohecker in London – Prepared by Mohammed for the Arabic Bulletin) Writing by Swati Bhatt and Aftab Ahmed. Edited by Chris Rees, David Gregorio, Christian Schmollinger, Sharon Singleton and Jane Merriman
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