India is projected to receive billions of dollars in inflows after its inclusion in the JPMorgan Chase & Co emerging markets index on Friday, which will open up the country’s $1.3 trillion bond market to a broad range of foreign investors.
How much foreign inflows has India already received and how much will it receive?
While investors worldwide have already invested close to $11 billion in Indian bonds that are eligible to be included in the index, JPMorgan expects $20 billion to $25 billion to come in over the next 10 months, Bloomberg wrote, adding that this will increase foreign ownership of Indian sovereign bonds from 2.5% currently to 4.4%.
What type of bonds are eligible to be added in the index?
Only Indian Government Bonds (IGBs) issued under the Reserve Bank of India’s ‘Fully Accessible Route (FAR)’ are eligible to be included in the index.
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These bonds must have a minimum outstanding amount of $1 billion and have at least 2.5 years to mature, making such bonds maturing after December 31, 2026, eligible, according to a Business Standard report.
What is JPMorgan’s Emerging Market Bond Index?
The JPMorgan Emerging Market Bond Index (EMBI), which was created in the early 1990s, is the world’s most widely used index for emerging market bonds, constituting $213 billion of assets globally, according to the article.
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India, with 28 bond types worth more than $400 billion, currently holds a 10% weightage, giving it a similar footing to China, Bloomberg wrote.
Why do foreign investors want to invest in India’s government bonds?
Foreign investors have been favouring India’s bonds as they have been Asia’s top performing ones, giving returns of 5.3%, compared to Indonesia’s 1.3% for example.
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India’s growth as well as its highly stable currency are additional factors in building up investor interest. The Rupee touched a peak of 83.3775 against the U.S. dollar early in today’s session but eventually gave up the gains to trade almost flat, Reuters wrote. The currency closed at 83.46 on Thursday.