Indian government bonds have recently been included in JP Morgan’s emerging markets index, marking a significant milestone for the country’s economy. This move is anticipated to bring in billions of dollars in investments, opening up a market worth Rs 1.3 trillion to a broader range of global investors. Following JP Morgan’s announcement in September, a substantial amount of nearly Rs 11 billion has already flowed into eligible bonds, with projections indicating additional inflows of Rs 20-25 billion in the next ten months. As a result, the foreign ownership of Indian bonds is expected to increase from 2.5% to 4.4%. The Indian debt market is gaining traction among investors, showing a sixth consecutive quarter of foreign investments in both sovereign and corporate bonds, a trend not seen in over a decade according to Bloomberg. The JP Morgan Emerging Market Bond Index, established in the early 1990s, is a highly regarded index for emerging market bonds. Originally focused on Brady bonds, the index has now expanded to include the Government Bond Index-Emerging Markets and the Corporate Emerging Markets Bond Index. The inclusion of Indian Government Bonds in JP Morgan’s indices is only applicable to bonds issued under the ‘Fully Accessible Route’ (FAR) designated by the Reserve Bank of India. These eligible bonds must have a minimum outstanding amount of Rs 1 billion and a residual maturity of at least 2.5 years, making all FAR-designated IGBs maturing after December 31, 2026, eligible for inclusion. The impact of India’s inclusion in the JP Morgan Emerging Market Global Diversified Index is expected to lead to significant inflows into FAR bonds amounting to Rs 23.6 billion. It is estimated that Foreign Portfolio Investor (FPI) holdings of outstanding FAR bonds could increase to 3.4% by April/May 2025. Furthermore, the inclusion of Indian government bonds in JP Morgan’s index is likely to reduce the weights of Thailand, Poland, and the Czech Republic over the next ten months. Since the announcement in September 2023, Indian government bonds have seen significant inflows of Rs 10.4 billion, a stark contrast to previous years’ outflows. This surge in investments highlights growing confidence in India’s debt market and the potential it holds for global investors. India’s ever-expanding presence in global bond indices signifies a positive trajectory for the country’s economic growth and financial stability. As the inflow of foreign investments continues to rise, India’s position as an attractive investment destination in the emerging market landscape is further solidified, paving the way for a more diversified and robust economy.
