India's inclusion in JP Morgan Bond Index : What to expect now?
HDFC securities
HDFC securities is one of the leading stock broking companies in India, and a subsidiary of HDFC Bank.
Great news for the Indian bond market!
On June 28, 2024, Indian government bonds (IGBs) will begin a 10-month inclusion process into the JP Morgan Emerging Market (EM) Bond Index. This is a significant development that is expected to bring in significant benefits to the Indian economy.
Here's what you need to know:
Inclusion Takes Time
The inclusion won't happen all at once. It will be phased in over a 10-month period, ending in March 2025. This measured approach allows for a smoother integration of Indian bonds into the index.
India’s Weight Rising
The contribution of India in JP Morgan EM Bond Index will increase slowly every month. It will go up from 1% in June 2024 and reach 10% by March 2025. It increasing weightage showcases its significance in the global market.
Potential Inflows
It estimated that this inclusion would attract between $2000-2200 crore of inflows into the Indian bond markets. This huge surge in foreign investment will give the much-needed boost to Indian economy.
A Greater Investor Base
Previously, foreign investors had only been holding 2.4% of Indian bonds. By 2025, this proportion is anticipated to double following its inclusion in JP Morgan index. A broader base of investors means more stability and liquidity for Indian bond market.
Why the inclusion of Indian government bonds in JP Morgan EM Bond Index is good news:
Visibility
Inclusion in a globally recognized index like JP Morgan's will put the Indian bond market on the radar of international investors. Now the Indian bond market will be seen by all global investors. More eyes mean more money will come into India.
Liquidity
More investors mean more liquidity in the market. Buy and sell Indian bonds will be so much easier.
Benchmarking
Now Indian bonds will have a benchmark to measure themselves against. Investors can see how their bonds are performing and make informed decisions.
Lower Borrowing Cost
Increased demand for Indian bonds due to the inclusion could lead to lower borrowing costs for the Indian government. This would free up resources for the government to invest in social and infrastructure development projects.
All in all, the inclusion of Indian government bonds in the JP Morgan EM Bond Index is a positive development that is expected to benefit the Indian economy in several ways. It will bring in more foreign investment, improve liquidity in the bond market, and potentially lead to lower borrowing costs for the government.