Indian bonds’ inclusion in the JPMorgan index to strengthen rupee. Here's how?
rupee is expected to gain from the addition of government bonds in the JPMorgan Government Bond Index-Emerging Markets (GBI-EM) index riding on dollar inflows, experts told ETMarkets.
India will enter the global bond index with a 10% weight cap and other smaller JPM EM indices in a staggered manner over a 10-month period beginning June 28, 2024. According to market experts, this could prompt around $30 billion of passive inflows.
Harsimran Sahni, Executive Vice-president & Head-Treasury at Anand Rathi Global Finance, sees a near- and long-term impact of the move.
“This inclusion would push the yield curve lower i.e. the 10-year benchmark is expected to move towards 7.00%, which will result in near term appreciation of rupee towards 82.5% due to the positive impact," Sahni said.
On the long term impact, Sahni said if Indian bonds are included in all the 3 indices, a substantial initial inflow of nearly $40 billion can be expected over a span of 10 months, which concludes in March 2025, with an incremental inflow of around $4-5 billion.
This could help the rupee to move towards Rs 80-81 level in the long term.
Anuj Gupta, Head Commodity & Currency, HDFC Securities, called this a big moment for the Indian bond market arguing in favour of a favourable impact on the INR. Amid a weakening rupee on the back of dollar strength, Gupta sees a stablising impact of the move.
«The inclusion of Indian government bonds in JPMorgan’s benchmark emerging-market index is positive news for the currency, especially at a time when the current account is deteriorating,» Gupta said while estimating significant inflows in the government bonds.
