JPMorgan is including India in its emerging markets bond index.

22 Sep, 2023

JPMorgan is including India in its emerging markets bond index.

JPMorgan Chase & Co. is set to introduce Indian government bonds into its widely-followed benchmark emerging-market index, a highly anticipated development that has the potential to attract substantial foreign investment to India's debt market.

The index provider is scheduled to incorporate these securities into the JPMorgan Government Bond Index-Emerging Markets, with the implementation date set for June 28, 2024. As per the latest statement released on a Thursday, India will be assigned a maximum weight of 10% in this index.

This strategic move towards index inclusion comes as a response to India's progressive initiatives, such as the introduction of the FAR program in 2020 and significant market reforms aimed at facilitating foreign portfolio investments, as noted by the team led by JPMorgan's global head of index research, Gloria Kim.

An overwhelming majority of benchmark investors who participated in surveys expressed their support for India's inclusion in this index, with nearly three-quarters in favor of the decision.

The incorporation of India into this prominent global index is expected to provide international investors with enhanced access to the world's fastest-growing major economy, which is renowned for offering some of the most attractive returns in the region. Analysts at HSBC Holdings Plc estimate that this move could potentially trigger inflows of up to $30 billion.

The anticipation of India's inclusion in international indexes has been on the rise recently as index providers seek to diversify their constituent offerings. Russia's exclusion from indexes due to the Ukraine conflict and China's ongoing economic challenges have dimmed their appeal in the sovereign debt market, leaving India as the last major emerging market yet to join global debt indexes.

It's worth noting that Indian authorities have maintained a firm stance on tax policy adjustments that would make it more feasible for these securities to be included in global indexes. In contrast, another significant emerging market, South Korea, has taken steps to foster foreign access by establishing an agreement to open an omnibus account with Euroclear Bank SA.

As of March, JPMorgan reported that support for the inclusion of India's index-eligible, high-yielding government bonds had risen to 60% in its surveys, up from 50% the previous year. In anticipation of this inclusion, foreign investors have increased their holdings of these bonds from nearly $7.4 billion at the end of 2022 to almost $12 billion, according to data from Clearing Corp. of India.

Additionally, FTSE Russell, another prominent index provider, has placed India's bonds under observation for potential inclusion in its emerging market gauge.

In a separate development, JPMorgan has placed Egypt on a negative watch due to reported challenges related to currency repatriation for investors. The eligibility of Egypt's index status will be evaluated over the coming three to six months.

Bloomberg LP, the parent company of Bloomberg Index Services Ltd, oversees indexes that compete with those from other service providers.