On June 28, India will be added to the JP Morgan Global Bond Index - Emerging Markets (GBI-EM) Global Series. This gradual inclusion over ten months will give Indian government bonds a 10% weighting in the index by March 2025.
This inclusion has significant implications for India. It is expected to attract significant foreign investment, potentially strengthening the rupee and offsetting any FPI outflows from the equity market. Only bonds designated as Fully Accessible Route (FAR) qualify, and there are currently 28 FAR-designated bonds that meet the criteria, with the 7.18% Aug-33 bond having the highest weight.
India will have the index's longest duration, 7.03 years, and an above-average yield-to-maturity of 7.09%. Since October 2023, the inclusion has attracted non-resident inflows totaling $8.1 billion.
Experts predict that this move will reduce borrowing costs, with government bond yields potentially falling by 15-20 basis points, making it less expensive for the government to fund projects. Corporate bonds, particularly AAA-rated bonds, are likely to see yield contractions, lowering borrowing costs for businesses and stimulating economic growth.
This increased investment is expected to support the rupee and boost economic growth by encouraging more infrastructure spending.
With inputs from agencies
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