India will be added to JPMorgan’s emerging market government bond index next year, paving the way for more foreign inflows to the number-five economy.
“Inclusion is expected to drive at least $21 billion of inflows from foreign investors, and if other index providers follow suit, the effects could be amplified further. Simply put, this will likely drive yields down for IGBs and provide some support the rupee at the same time,” said Jennifer Taylor, head of emerging market debt at State Street Global Advisors.
The yield on the 10-year Indian government bond was 7.16% on Friday.
She noted the Reserve Bank of India first started courting index providers in 2019.
The key move came in 2020 when India created its fully accessible route, or FAR, bond market, said Lee Collins, head of index fixed income at Legal & General Investment Management. He said the FAR bond issuance has added meaningful daily liquidity.
“Our view is that the [Indian] market can offer an attractive yield, volatility and maximum drawdown levels that are more akin to lower yielding, higher rated issuers such as the U.S. and China, as well as low levels of correlation to other emerging and developed market issuers,” he added.
The iShares JPMorgan USD emerging market bond ETF has slipped 1% this year.
The S&P BSE Sensex index closed Friday with a small loss, but is down just 2% from its record high.