Informist, Friday, Sep 22, 2023

--JPMorgan: To add India gilts to global index for emerging mkt debt

--JPMorgan: To add India gilts to bond indices starting Jun 28

--JPMorgan: India gilts to have 10% weight on emerging mkt debt index

--JPMorgan: Inclusion of India gilts to be phased in over 10 months

--JPMorgan: India gilt addition in indices to be complete by Mar '25

--JPMorgan: Only FAR-eligible India gilts to be added to bond indices

NEW DELHI – Indian government bonds will be included in JPMorgan's Global Bond Index – Emerging Markets suite starting on Jun 28 over a 10-month period, the New York-headquartered financial service provider said Thursday. This development comes after several years of a no-show to take forward the talks that first began in 2013. The bond market has been rife with speculation on the matter over the past month.

Indian government bonds will be included in its Global Bond Index – Emerging Markets suite over a 10-month period starting Jun 28, JPMorgan said in a release.

"India will be included in the GBI-EM (Global Bond Index – Emerging Markets) Global index suite and all relevant derivative benchmarks (including custom indices), starting June 28, 2024," the release said.

India's gilts will hold the maximum 10% weightage on the GBI-EM Global Diversified Index, and 8.7% weight on the flagship index for global emerging market debt, the release said. The process will be completed by Mar 31, 2025, with a 1% increase in weightage each month.

Only bonds eligible under the Fully Accessible Route with an outstanding equivalent of $1 bln or higher and maturing after December 2026, will be added to the index, the release said. Around 27 trln rupees, or $330 bln, of India's bonds are eligible for inclusion in the index, JPMorgan said.

All bonds issued by the government in its current borrowing calendar for Apr-Sep are eligible, except gilts issued with a maturity of 40 years. Sovereign green bonds, which saw a maiden issue worth 160 bln rupees in 2022-23 (Apr-Mar), will also be eligible. 

Analysts at HSBC have projected $30 bln of inflows into government bonds from the inclusion in JPMorgan's index, which could drive down the government's borrowing cost by as much as 15 basis points immediately, according to some market participants.

The move marks an end to years of speculation on India's inclusion in bond indices operated by JPMorgan, FTSE Russell, and Bloomberg.  India has been on JPMorgan's watchlist for inclusion since 2021, but government debt in India has remained chronically under-owned by foreign investors due to taxation and operational hurdles.

At its index governance review for 2023, the index provider said that 73% of benchmarked investors were in favour of adding India's gilts to the index for emerging market debt. Market participants had speculated strong interest from foreign investors in India's gilts to diversify away from bonds issued by China and Russia.

Indian gilts will be added to the wider JPMorgan's Government Bond Index – Aggregate at 0.95% weightage and the Global Aggregate Bond Index at a 0.52% weightage in one fell swoop in June, the release said. 

"IGBs (India Government Bonds) remain ineligible for the GBI-EM Narrow/Diversified series, due to taxes levied on foreign investors," the JPMorgan release said.

Some analysts have speculated that the addition by one set of investors may spur inclusion in bond indices by other operators. FTSE Russell is expected to announce the result of its bi-annual review of emerging market debt indices by the end of September. 

In addition to the benefit to the fixed income market, the expected inflows are also seen driving up the rupee against the dollar.  End

US$1 = 83.09 rupees

Reported by Aaryan Khanna

Edited by Ranjana Chauhan

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