JP Morgan to add G-Secs to its emerging market index

Sandeep Dikshit

New Delhi, September 22

In a development that could help India attract $21 billion (Rs 1.7 lakh crore) worth of investments from the next fiscal, global financial firm JP Morgan has said it plans to include Indian government bonds (IGBs) or government securities (G-Secs) into its benchmark Emerging Market index.

Will attract more foreign funds

• The inclusion of the IGBs will be staggered over a 10-month period from June 28, 2024 to March 31, 2025, indicating 1% increment on its index weight
• This would help attract higher foreign flows, as many overseas funds are mandated to track global indices
• It will also help bring in large passive investments from overseas, as a result of which more domestic capital would be available for industry

The access to lower interest-bearing foreign money will also reduce the borrowing cost for the government. The development also comes amid a preference by world manufacturing majors to relocate their supply chains away from China and to India and other friendly countries.

JP Morgan will stagger the inclusion over 10 months from June 28, 2024 to March 31, 2025, indicating 1% increment on its index weight. It will reach the maximum weight threshold of 10% in the GBI-EM Global Diversified, and approximately 8.7% in the GBI-EM Global index, said a company statement.

“It is a welcome development showing confidence in the Indian Economy,” said Economic Affairs Secretary Ajay Seth. “We welcome this development. JP Morgan has made this decision on their own. It attests to the confidence that financial market participants and financial markets, in general, have on India’s potential and growth prospects and its macroeconomic and fiscal policies,” said Chief Economic Adviser V Anantha Nageswaran. “Just as long-term equity investors have been amply rewarded by investing in Indian markets, so will long-term investors in Indian government bonds be,” Nageswaran added.

JP Morgan global bond indices account for $213 billion worth of investments by global investors, said Edelweiss Mutual Fund. A 10% weight for IGB would translate into $21 billion worth of investments in IGB by March 31, 2025 assuming investors have zero weight as of now and would like to be index neutral.

The inclusion would act as a magnet for attracting higher foreign flows, as many of the big players follow the trend set by majors such as Morgan, Bloomberg and FTSE.

The government and Morgan took nearly three years to iron out the irritants. It was in the 2020-21 Budget that Union Finance Minister Nirmala Sitharaman had announced that certain specified categories of government securities would be opened fully for foreign investors.