Finance Ministry, experts welcome move by JP Morgan to add India bonds in emerging market index

New Delhi [India], September 22 : The Finance Ministry on Thursday welcomed the decision of JP Morgan to include Indian government bonds in its emerging-market debt index stating that it will give the country more access to debt funds.
Chief Economic Advisor V Anantha Nageswaran said, “We welcome this development. JP Morgan has made this decision on their own. It attests to the confidence that financial market participants and financial markets, in general, have on India’s potential and growth prospects and its macroeconomic and fiscal policies.”
“Just as long-term equity investors have been amply rewarded by investing in Indian markets, so will long-term investors in Indian government bonds be,” Nageswaran said.
Secretary at the Department of Economic Affairs, Ajay Seth said the inclusion of Indian bonds in JP Morgan index is “a welcome development showing confidence in Indian Economy.”
JPMorgan Chase & Co in a statement on Thursday said it will add Indian government bonds to its widely-tracked benchmark emerging-market index starting June 28, 2024.
India is expected to have a maximum 10 per cent weightage in its Government Bond Index-Emerging Markets.
The inclusion of the index follows the Indian government’s “substantive market reforms for aiding foreign portfolio investments," the American multinational investment bank said.
The inclusion of Indian government bonds in the JPMorgan Government Bond Index-Emerging Markets index could be seen as yet another sign of its growing appeal to global investors as it continues to remain one of the fastest-growing major economies.
This development holds significance particularly as various global manufacturing behemoths are looking at India to set up shop as part of their China+1 diversification strategy in a post-pandemic world order.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services termed the development as a very positive move from the perspective of the Indian economy in general and the capital market in particular.
“The foreign demand for GoI bonds will push down their yields,” he said
“Most of the corporate bonds yields are benchmarked to the yields on government bonds. Therefore, yields will decline pan India, across industries. The decline in the cost of capital will translate into higher profits for the corporate sector, which, in turn, will boost stock prices enabling the stock market to scale higher levels,” Vijayakumar said.
According to Mukesh Kochar, National Head - Wealth, AUM Capital, “This event will ease borrowing pressure as a large part of the borrowing will be observed by this route. Banks Treasury will be flushed with mark-to-market gains. At the same time, it is a big positive for our currency as a big dollar flow will be there due to the buying of government securities. As far as the equity market is concerned it is positive for Banks, NBFC, leveraged companies etc By and large it is a big macro positive for India.”
With India receiving a 10 per cent allocation in the USD 240 billion index, the move has the potential to attract billions of foreign inflows, said Sandip Raichura - CEO of Retail Broking and Distribution & Director, Prabhudas Lilladher Pvt Ltd.
Raichura said that the development “is a highly anticipated event that carries significant implications for the nation's debt market."
Separately, foreign investors are already making a beeline to place their bets in India’s equity markets.
Since March through August, foreign portfolio investors have remained net buyers in Indian stock markets. In September, however, the quantum of fund inflow had slowed and remained on the negative side.
So far in 2023, foreign investors have cumulatively put Rs 126,998 crore into the Indian stock markets. India's strong economic outlook, as forecast by various global agencies, seemed to have led to a renewed appetite for domestic stocks.