Domestic Debt Market: $30 billion inflows expected! Why JPMorgan’s inclusion of Indian bonds in its global index is a big boost

JPMorgan has made a significant decision to include India in the Government Bond Index-Emerging Markets (GBI-EM) index after nearly two years of monitoring. This move is highly anticipated and is expected to have several positive impacts. India’s inclusion in this prominent and widely-followed bond index will lower its borrowing costs and attract passive investments of approximately $30 billion into the domestic debt market, according to an ET report.
This development is also likely to stabilize the Indian rupee, reduce interest rates, lower bond yields, and subsequently reduce the cost of borrowing which will be a boost for the bottomline of companies.
Mukesh Kochar, National Head – Wealth at AUM Capital, highlighted, “This will reset the base rate for India and the yield should come down sharply. India’s cost of borrowing will come down. Since Covid, the fiscal deficit in India has remained elevated due to higher borrowing. This event will ease borrowing pressure as a large part of the borrowing will be observed by this route. Banks’ Treasury will be flushed with mark-to-market gains.”
Additionally, the Indian rupee is poised to benefit from a significant inflow of dollars resulting from the purchase of government securities.
In terms of the equity market, this development is seen as positive for banks, non-banking financial companies (NBFCs), and leveraged companies. Mukesh Kochar stated, “By and large it is a big macro positive for India.”

India will enter the global bond index with a 10% weight cap and other smaller JPM EM indices gradually over a 10-month period starting from June 28, 2024. Market experts estimate that this move could trigger passive inflows of approximately $30 billion.
Emkay Global’s lead economist, Madhavi Arora, emphasized that this inclusion will structurally reduce India’s risk premia and cost of funding, enhance the liquidity and ownership base of government securities, and assist India in financing its fiscal and current account deficits.
Most corporate bond yields are tied to government bond yields, so the decline in yields will have a widespread impact across industries. Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, explained, “Therefore, yields will decline pan India, across industries. The decline in the cost of capital will translate into higher profits for the corporate sector, which, in turn, will boost stock prices enabling the stock market to scale higher levels.”
The passive inflows resulting from India’s inclusion are expected to elevate India’s international standing and further strengthen its local fundamentals. Axis Mutual Fund anticipates that this move will prompt the RBI to conduct sterilization operations, fortifying forex reserves and the currency. It may also open doors for long-term debt capital to support India’s extensive infrastructure and development requirements.
India’s bond market, currently the third largest among emerging markets (EMs) after China, boasts a market capitalization of over $1.2 trillion, nearly triple that of Indonesia’s and comparable to Brazil’s. However, foreign portfolio investment (FPI) ownership of India Government Securities (G-Secs) is less than 2%, significantly lower than EM peers.
With Russia’s exclusion and issues in China, global debt investors’ options have become more limited, analysts have noted.
Banking industry veteran Keki Mistry believes that India’s inclusion will also help enhance its forex reserves. “Our forex reserves were at one time nearly $600 billion and they came down to about $550 billion odd a few months ago. But in the last six months or so, we recouped all those losses and we have come back to a reserve position close to $600 billion. So this would only further improve that,” he said.
However, JPMorgan’s inclusion of India in the bond index does not immediately guarantee inclusion in FTSE and Bloomberg indexes, as these have stricter conditions related to FPI taxation and Euroclear requirements. Madhavi Arora pointed out, “Changes to laws for taxing FPI capital gains, which would have helped India adhere to Euroclear requirements, were not a major impediment for India’s inclusion in the JPM index. However, this is still a major stumbling block for the Bloomberg indices, though not so much for the FTSE indices.”
Recent progress in addressing operational issues, such as margin requirements and extended settlement times, has played a crucial role in India securing inclusion in the JPM GBI-EM index. The removal of Russia from the index has also contributed to making the index slightly more concentrated, with India’s inclusion helping to diversify holdings, the economist added.