JPMorgan Index may include India bonds in 2024, Pictet says
JPMorgan Chase & Co. is reportedly planning to include India’s sovereign bonds on its indexes in the coming year, as certain investment obstacles are expected to be resolved. Pictet Asset Management SA, one of Europe’s prominent asset managers, shared insights from discussions with the index provider regarding this potential development.
Sabrina Jacobs, a senior client portfolio manager for emerging-market fixed income at Pictet Asset Management SA, noted that India is enthusiastic about the inclusion of its sovereign bonds on the indexes, despite any potential reservations that might be perceived from the outside. Jacobs mentioned that the inclusion process is being targeted for a start in mid-2024, followed by a phased approach to ensure a smooth transition.
This move would have significant implications for India’s bond market, potentially attracting increased investment and attention from global investors. The inclusion of India’s sovereign bonds on major indexes could lead to greater liquidity, increased demand, and potentially lower borrowing costs for the Indian government. It also reflects India’s efforts to enhance its standing in global financial markets and make its assets more accessible to international investors.
As with any major financial decision, the inclusion of India’s sovereign bonds on indexes will likely involve careful consideration and coordination among various stakeholders, including market participants, regulators, and index providers. If the inclusion does occur, it could mark an important step in India’s integration into the global financial landscape and could have far-reaching effects on its economy and financial markets.
India has approached the idea of opening its substantial $1 trillion government debt market to global funds in recent years, only to step back from fully meeting the requirements for index inclusions. Notably, India remains one of the few major emerging markets that hasn’t yet joined international bond indexes, unlike countries like China. Policymakers in India have expressed concerns about potential destabilizing effects from excessive hot money inflows.
Morgan Stanley has estimated that if India were to be included in two out of three major global bond indexes, including one from JPMorgan that focuses on developing markets, it could lead to an influx of approximately $40 billion in investment. However, as of now, India’s inclusion in these indexes remains pending.
JPMorgan, as the index provider in question, has not provided any official comments on the matter. Additionally, the Finance Ministry of India has not responded to inquiries seeking comments on the potential inclusion of India’s sovereign bonds in international indexes.
The decision regarding India’s inclusion in global bond indexes is complex, as it involves a balance between the benefits of increased foreign investment and the potential risks associated with excessive inflows.
Policymakers must weigh the advantages of greater access to global capital against potential challenges to domestic financial stability. As discussions and considerations continue, the potential inclusion of India’s sovereign bonds on major indexes remains an important development to watch in the global financial landscape.
JPMorgan is anticipated to announce the outcomes of its index reviews around October. The index provider has previously identified specific issues that need to be addressed in order to facilitate the inclusion of India’s sovereign bonds in its indexes. These challenges include dealing with a lengthy registration process and ensuring operational readiness for various aspects of trading, settlement, and custody of assets onshore.
Despite the operational complexities associated with India’s market, there is speculation that JPMorgan might proceed with the inclusion to enhance the diversification of index constituents.
Bank of America strategists have suggested that such a move could be motivated by the desire to broaden the range of assets represented in the index. This can be particularly relevant in light of recent geopolitical events that have impacted the composition of global bond indexes.
For example, Russia’s actions in Ukraine led to its exclusion from certain indexes, and geopolitical tensions have affected the attractiveness of China’s sovereign debt.
The inclusion of India’s sovereign bonds in major global indexes could potentially attract significant foreign investment and contribute to the country’s integration into the global financial markets.
However, the decision will likely take into account various factors, including India’s progress in addressing the operational hurdles highlighted by the index provider. The outcome of JPMorgan’s index reviews in October will provide further insights into the potential path for India’s inclusion and its implications for the global bond market.
As the possibility of India’s inclusion in global bond indexes gains attention, foreign investors have shown increased interest in the country’s bond market. This year, foreign investors have purchased approximately $3.8 billion worth of index-eligible bonds, also known as the Fully Accessible Route (FAR) notes.
This inflow is nearly double the amount of investment received in 2022. Additionally, yields on India’s 10-year government bonds have decreased by 12 basis points this year, currently standing at 7.20 percent.
The increased foreign investment in India’s bond market could lead to reduced borrowing costs for the country. These lowered borrowing costs can support Prime Minister Narendra Modi’s plans for significant infrastructure spending, which in turn can drive economic growth.
Sabrina Jacobs from Pictet Asset Management noted that India’s economy is performing well, with growth being primarily driven by domestic factors. This growth trajectory contributes to the appeal of India’s bonds to investors.
Should India’s sovereign bonds be included in global indexes, it would likely further enhance the attractiveness of the country’s bond market to foreign investors. Such inclusion could drive more inflows, potentially leading to even lower borrowing costs and offering increased support for the country’s economic expansion efforts.
As a reminder, Bloomberg LP, which operates Bloomberg Index Services Ltd, administers indexes that compete with those from other service providers.
