JPMorgan bond index to add Indian bonds from today; up to $25 billion inflow expected in next 10 months

JPMorgan Chase & Co is officially set to include Indian government bonds to its emerging markets index from today, thus opening $1.3 trillion market to global investors.

As per Bloomberg, global funds have already poured close to $11 billion into index-eligible bonds since JPMorgan’s announcement in September. Meanwhile, the news agency quoted JPMorgan and said that it expects $20 billion to $25 billion to come in over the next 10 months, raising foreign ownership to 4.4% from 2.5% currently.

“Upon inclusion, India will have the single highest duration across the index, with an above average yield-to-maturity,” JPMorgan strategists led by Michael Harrison wrote in a note this week.

India bond inclusion

Data compiled by Bloomberg showed that both sovereign and corporate notes are headed for a sixth straight quarter of foreign inflows, a streak last seen 11 years ago. India's debt has become a favorite among emerging market investors, attracted to the nation’s robust economic growth and a stable currency, which comes courtesy of the central bank.

“Most of the flows we’re seeing are driven by investors who are tracking the index and should be fairly sticky,” Vikas Jain, head of India fixed income, currencies and commodities trading at Bank of America Corp told Bloomberg. “Declining debt-to-GDP ratio, stable macros and favorable demand-supply for India’s bonds are positive factors.”

As per JPMorgan, India's sovereign debt has outperformed its index counterparts over the past decade and the bonds offer access to a high-growth, high-yield market for global investors. Meanwhile, Indian government debt is Asia's top performing so far this year, returning 5.3% compared to a 1.3% gain in Indonesian local currency bonds, according to data compiled by Bloomberg.

The report further mentioned that within the Fully Accessible Route bonds eligible for index inclusion, 28 securities worth more than $400 billion will give India a 10% share in the index at peak.

Also watch: Indian Bonds: JP Morgan will add government bonds to its emerging-market index