June 28, 2024: A Watershed Moment for Indian Bond Markets

The inclusion of Indian sovereign debt in the JPMorgan Emerging Markets Bond Index (EMBI) marks a watershed moment for the Indian fixed income market and the broader Indian economy. Historically, while the Indian equity market has seen substantial global participation, the bond market has awaited this pivotal event to trigger its growth phase.

The JPMorgan EMBI comprises 18 sovereign economies, and India now holds a 10% weightage in the index, the maximum cap for any particular country. This allocation will occur at a rate of 1% per month over the next 10 months, bringing an anticipated USD 25 to 30 billion of passive fixed income asset allocation to India. This development puts the Indian fixed income market under the global spotlight.

As India’s economy grows, the need for access to cost-efficient capital becomes crucial. The bond market, alongside the equity capital, will play a very important role in meeting these needs. The growth capital sourced from government bonds is expected to slowly benefit the corporate sector, public sector financing, and infrastructure financing in the years to come.

India’s fixed income market, currently valued at approximately USD 2.6 trillion, is set to expand. With a GDP of around USD 3.75 trillion and growing, India stands on the threshold of transitioning from an emerging market to a developed economy. The Indian economic story remains stable with a projected GDP growth rate of around 7.2%.

In addition to the JPMorgan index, India anticipates inclusions by other indices. The Bloomberg index inclusion is expected from January 2025, bringing an estimated USD 2 to 3 billion in allocation. This inclusion is just the beginning, with numerous international indices and global bond indices likely to include India in the coming years.

India’s attractiveness as an investment destination is further bolstered by global factors. With Russia becoming uninvestable due to global sanctions and China’s economy facing challenges, capital flow to India appears favorable.

For years, India has sought triggers to broaden and deepen the corporate bond market. The G-Sec market has shown encouraging signs with increased retail participation. For investors looking to diversify their portfolios beyond equities, this event is highly significant.

This milestone marks the beginning of a strong, secular growth story for the Indian bond market, poised to significantly benefit from increased global capital allocation in the years to come.

Source: Business Today

Link: https://www.youtube.com/live/8PHKBZ2dZ0E

Date: 28th June