JPMorgan on track to include India in emerging market debt index from June; How will it impact Indian bonds and yields?

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Read here: JPMorgan says India index inclusion on track, most clients ready Since the JPMorgan announcement, Indian sovereign bonds have seen about $8 billion of inflows into the so-called Fully Accessible Route securities, Bloomberg reported. Moreover, Bloomberg Index Services Ltd. also has announced to include India to its emerging markets index from January.

The foreign fund inflows from the index inclusion are having a substantial impact on several Indian assets. While the corporate bonds are also besting peers, the foreign exchange reserves hitting a record high has helped the rupee shrug off the impact of a broad strengthening in the dollar. However, the major impact is likely to be on bond yields which are likely to drift lower going ahead.

Also Read: Bond yields expected to drift lower over next one year; What should investors do? “The expected inclusion of Indian bonds in global indices like JPMorgan GBI-EM could trigger substantial inflows of $30-40 billion from foreign investors, deepening market liquidity. It may exert downward pressure on yields, reducing borrowing costs for India. The rupee could strengthen against major currencies," said Atul Parakh, CEO- Bigul.

However, he believes the impact hinges on India’s ability to implement regulatory reforms, ensure market accessibility, and maintain fiscal/monetary prudence. Globally, factors like US interest rates, emerging market risk sentiment, and currency fluctuations will influence investment flows, Parakh added. Premal Kamdar, Analyst, UBS Securities India expects the 10-year Indian bond yield to remain rangebound in the near term before gradually dropping by 50– 75 bps by the end of the next financial year.