Indian government bonds join EM index

India government bonds fixed income emerging markets bonds

5 June 2024
| By Laura Dew |
image
image
expand image

Indian government bonds are to be added to the main emerging market local currency debt index for the first time after a decade-long wait.

The assets will enter the JP Morgan Government Bond Index – Emerging Markets Global Diversified Index with a 1 per cent weight at the end of June and rise gradually to a 10 per cent index weight by April 2025.

This gradual process will reduce the impact on other markets that will see their weights reduced and allow investors to navigate the complexities of investing in the market. JP Morgan may also require certain conditions to be reached before it approves a full weighting, meaning it could take longer than 10 months.

This will be the second-largest bond market in the emerging market universe behind China with US$330 billion of debt. 

However, despite its size, it has been difficult for foreign investors to access which has delayed its inclusion to the index.

Mark Evans, investment specialist within emerging market debt and currency at Ninety One, said: “Hurdles to index entry include the lengthy process of opening local custody accounts, a requirement of pre-funding (which not all local custodians facilitate), and operational foibles around trading. While most of these challenges remain, significant investor demand appears to have tipped the balance in favour of index inclusion.”

While the inclusion will be welcome news for those looking to access the asset, Evans said he does not expect it to have a material effect on asset prices. Foreign ownership of Indian debt is around 2 per cent and is expected to rise to around 5 per cent following its index inclusion, meaning new inflows will be small. 

“Although an estimated US$23.6 billion could flow into India’s debt market as a result of index inclusion equating to around 17 per cent of India’s annual net borrowing for 2024 we believe local financial institutions, including the central bank, are likely to soak up this demand.”

Ninety One’s preference, he said, is for a benchmark-neutral stance on Indian duration as he believes valuations are rich and there is no need for the central bank to start easing policy rates.

Read more about:

AUTHOR

Add new comment

The content of this field is kept private and will not be shown publicly.

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

JOHN GILLIES

tHOSE 989 WHO ARE CEASED WILL GO ON TO LIVE A LONG AND HEALTHY LIFE JG...

4 days 19 hours ago
Chris Cornish

What a sticth-up. Looks like Labor Senator Jess Walsh follows Stephen Jones who follows what the industry super funds ...

4 days 16 hours ago
Peter Swan

This report is a blatant display of far-left factional partisanship, treating superannuation funds as state property and...

4 days 17 hours ago

ASIC has cancelled the AFS licence of a Sydney wealth firm, the fifth Sydney firm to see a cancellation since the start of the year....

2 weeks 5 days ago

More than 20 winners from the funds management industry have been crowned at this year’s awards....

1 week 5 days ago

ASIC has obtained interim orders from the Federal Court to freeze the assets of a registered managed fund and prevent its former director from leaving Australia. ...

6 days 16 hours ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND