Indian government bonds in the JP Morgan index

The Indian financial market it is now completely accessiblethanks to the inclusion of government bonds in one of the major global bond market indices. While the shares of Indian companies have been included in the main emerging market indices for some time – he explains Richard FlaxChief Investment Officer of Moneyfarm the same could not be said for government bonds. The obstacle to international diffusion was mostly currency-related, as India does not issue bonds denominated in foreign currencies and subscription to rupee-denominated bonds has historically been closed to foreign investors.

The time of the pandemic

The pandemic has changed the cards on the table. The need to finance the stimulus package launched by the government to deal with the health emergency, in fact, has given rise to a process of progressive opening of the Indian government bond market to non-domestic investors.

A decision also linked to the need to finance an economy which boasts the highest growth rate globally.

Inclusion in the JP Morgan Index

And this is how India understood that, to access a larger capital market, it had to open up to international markets. A journey that culminated with the debut of Indian government bonds in a global bond index, the JPMorgan Government Bond Index-Emerging Markets. A first for Indian sovereign bonds, which will be included in the index gradually; inclusion in the index will take place over 10 months, with a weight of approximately 1% per month until reaching a maximum of 10%.

A great achievement

It is a significant achievement not only for India, but also for investors – explains the Moneyfarm analyst -. that from now on they will have access to a market (Indian public debt) from 1,300 billion dollarswhich has recently offered some of the higher returns among its peers.

In addition, the higher level of diversification of the index will be functional to for the first time ever inside and of theRussian stocks ousted from negotiations after the invasion of Ukraine.

Being included in the largest emerging market bond index will allow India to reach a greater number of investors and therefore raise more funds and reduce the average cost of financing. According to Goldman Sachs estimates, this move will be able to increase global investments in Indian government debt by as much as $40 billion, leading to a decline in yields and strengthening the rupee. However, the increase in foreign flows could also have some downsides, such as making the country’s bond and currency markets more volatile, posing new challenges to the Indian government and monetary institutions.