JPMorgan adding India local govt bonds to index to trigger higher inflows

NEW DELHI, Sept 22 (Reuters) - JPMorgan (JPM.N) on Friday said it will include India in its widely tracked emerging market debt index, setting the stage for billions of dollars of inflows into the worlds fifth-largest economy.

Indias local bonds will be included in the Government Bond Index-Emerging Markets (GBI-EM) index and the index suite, benchmarked by about $236 billion in global funds according to JPMorgan.

JPMorgan said 23 Indian Government Bonds (IGBs) with a combined notional value of $330 billion are eligible. All fall under the category of “fully accessible” for non-residents.

“Indias weight is expected to reach the maximum weight threshold of 10% in the GBI-EM Global Diversified (.JPMGBIEMGD), and approximately 8.7% in the GBI-EM Global index,” said JPMorgan.

Inclusion will start on June 28, 2024, and extend over 10 months with 1% increments on its index weighting, as India is expected to reach the maximum weighting of 10%, JPMorgan said.

“This will provide a large additional pool of passive foreign funding for India. In the medium term it will lower the countrys cost of funding,” said Sanjeev Sanyal, a member of Indias Economic Advisory Council to the Prime Minister.

India began talks on including its debt in global indexes in 2019, while also talking to Euroclear about clearing and settlement.

Foreign investor buying in Indian bonds has remained tepid with net purchases of $3.4 billion so far in 2023. Foreign investors own less than 2% of outstanding Indian government debt.

“An inclusion in JP Morgans index could see others follow up,\” BofA Securities said in a report in July.

The Indian rupee rose 0.3% in offshore trade before local markets opened while traders expected local bond yields to fall sharply.

“This announcement is a significant positive for the INR bond in the short-term as investors look to front-run the eventual inclusion,\” said analysts at DBS in a note on Friday.

In the same announcement, JPMorgan said Egypts eligibility in the GBI-EM series will be on review for three to six months, due to reports of \“material\” hurdles in currency repatriation.

“If the hurdles cited by benchmarked investors persist, a status review will be triggered for Egypts removal from the GBI-EM series,\” JPMorgan said.

Egypt will remain in the index during the review.

Reporting by Aftab Ahmed in New Delhi, additional reporting by Rodrigo Campos in New York and Sarita Singh in New Delhi; Editing by Chris Reese, David Gregorio and Christian Schmollinger