Inclusion of Indian bonds in JP Morgan index to widen investor base, may boost rupee: CEA
V Anantha Nageswaran on Friday.
Global financial firm JP Morgan has said that it plans to include Indian government bonds or government securities (G-Secs) into its benchmark emerging market index from June, 2024, a move that will bring down borrowing costs for the government.
Nageswaran said that there is no need to assume there would be increased volatility in the currency market due to the index inclusion.
He also said there is potential for currency appreciation following the inclusion of Indian bonds in JPMorgan index.
The inclusion of G-Secs will be staggered over a 10-month period from June 28, 2024 to March 31, 2025, indicating a one per cent increment on its index weight.
Nageswaran claimed that long-term patient investors in Indian G-Sec will benefit from the move.
«Obviously, the investor base for Indian government bonds widens and it will also in a way, relieve the Indian financial institutions from having to be one of the biggest buyers or subscribers of government bonds and they can actually then lend that money for more productive purposes to private sector, the commercial sector individuals etc,» Nageswaran told reporters.
«Everything else being equal, an incremental source of demand should cause a reduction in G-Sec yield, but it also depends on other factors,» he said.
Replying to a question, he said there will be a tendency for the currency to appreciate just as it happened between 2003 and 2008 when capital inflows into India surged.
«There is a demand for investors to buy the indian government bonds… so in that sense, there is a potential for currency appreciation, when the index inclusion starts to happen or the demand from investors for the Indian government securities starts to rise,» he said.
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