India's entry into JPMorgan index to drive in USD 25-30 billion in fund inflows: Prabhudas Lilladher
Jul 10, 2024
New Delhi [India], July 10 : An inflow of USD 25-30 billion is expected into the Indian debt market by March 2025, said stock broker Prabhudas Lilladher who attributed it to the recent inclusion of government bonds to the JPMorgan Chase & Co's benchmark emerging-market index -- Government Bond Index-Emerging Markets (GBI-EM).
In a significant development that could pull in foreign funds into India's debt market, JPMorgan Chase & Co added Indian government bonds to its benchmark emerging-market index starting June 28.
The inclusion of Indian government bonds in JP Morgan Emerging Markets Bond Index in June 2024 is a significant milestone nearly three decades after it opened its stock market to international investors.
"The announcement in September 2023 has stirred a shift in foreign portfolio investment with ownership of India's government securities by foreign investors increasing from a modest 1.6 per cent to 2.3 per cent in June 2024," said Arsh Mogre, Manager - Economist, Prabhudas Lilladher.
"The impact of this inclusion was immediately evident with a resurgence in foreign institutional investments, leading to significant net inflows of USD 1.8 billion in June alone. The bond inclusion not only reversed earlier trends of net outflows, but also enhanced liquidity in India's bond market."
This, Mogre said, also supported the broader financial stability by diversifying funding sources and reducing reliance on domestic capital.
"This strategic integration into a global bond index underscores a growing confidence among global investors and positions India as a more integrated player in the international debt market."
Inflows into the so-called fully accessible route (FAR) bonds by foreign portfolio investors have been to the tune of almost USD 11 billion since the inclusion announcement was made in September 2023, said global investment bank company Morgan Stanley in a report this Monday.
Net inflows of money into India's debt markets have been positive in all but one month in 2024, data showed.
This inclusion, according to Morgan Stanley, holds significant implications for foreign interest and participation in the Indian bond markets.
On G-Secs demand, Morgan Stanley noted that local banks hold 40 per cent of G-Secs. Insurance companies and the RBI hold 28 per cent and 13 per cent, respectively.
The inclusion of the index followed the Indian government's substantive market reforms for aiding foreign portfolio investments, the American multinational investment bank JP Morgan had said last year during the announcement.
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 for investments, as part of their diversification strategy in a post-pandemic world order.
JP Morgan had said India is expected to have a maximum 10 per cent weightage in its Government Bond Index-Emerging Markets. "Inclusion of the IGBs will be staggered over a 10-month period starting June 28, 2024, through March 31, 2025 (i.e., inclusion of 1 per cent weight per month)," JP Morgan had added then.
Foreign investors are already making a beeline to place their bets in India's equity markets. Foreign portfolio investors have been net buyers in Indian stock markets, on and off.
