India making progress on global debt index debut, says JPMorgan

Measures taken by Prime Minister Narendra Modi’s government in opening the sovereign debt market to foreigners have boosted prospects for inclusion in major global indexes, according to JPMorgan Chase & Co.

“India is making progress toward opening up its market to foreign investors and establishing a track record for future inclusion in major bond indices, including the GBI-EM Global Diversified Index,” JPMorgan Index Research Team said by email. Reuters on Monday reported JPMorgan had kept Indian bonds out of its flagship indices.

Inclusion in global indices could lure billions of dollars into Indian debt, just when the nation’s virus-ravaged economy faces its steepest-ever contraction. The government is scheduled to borrow an unprecedented Rs 12 trillion ($163 billion) this financial year and traders fear it may overshoot the target to finance a potential stimulus.

“India needs foreign investors to buy its massive debt issuance, but hopefully the delay shouldn’t dis-incentivise the government in undoing the regulations which were relaxed,” said Abhishek Kumar, the London-based head for emerging at State Street Global Advisors.

The administration in March opened up a wide swath of its sovereign bond market to overseas investors, its biggest step yet to secure access to global indexes. That plan has so far attracted about Rs 259 billion.

“The recent changes have been good but more needs to be done to lure investors,” said Kumar.

Benchmark 10-year bonds declined by the most in more than two years in August amid surging inflation and supply fears. Yields have eased by more than 10 basis points this month after the central bank announced ‘twists’ operations and outright purchases.

About $115 billion in notional value of current and upcoming government debt have been marked for accessibility, JPMorgan Index’s team strategists, led by Gloria Kim, wrote in note. This chunk would account for about 8 per cent of the GBI-EM Global Diversified index, with the potential to grow to the maximum weight of 10 per cent with additional supply, they wrote. “Measures to earmark bonds as fully accessible to international investors could eventually pave the way for benchmark eligibility,” they said. “For now, India remains off-index and under review for inclusion”.

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