JPMorgan's historic decision to include Indian bonds in its emerging markets index is poised to attract billions in foreign investments to India's burgeoning $1 trillion government bond market. Discover how this move reflects India's growing global influence and its implications for the economy.


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Foreign investors are gearing up to play a more significant role in India's $1 trillion government bond market, marking a significant shift.

JPMorgan Chase & Co. recently made a groundbreaking decision to include Indian bonds in its emerging markets index, opening the door to substantial capital inflows. This move comes when India is striving for more significant global influence due to its rapid economic growth and positioning as an alternative to China.

Morgan Stanley strategists see this index inclusion as a pivotal event that could increase foreign investment in India's fixed-income market. However, it may also bring greater scrutiny from foreign investors, potentially leading to higher market volatility.

The inclusion process will begin in phases from June 2024, with India's maximum weighting in JPMorgan's emerging market index capped at 10%. Goldman Sachs Group anticipates more than $40 billion in inflows from active and passive funds over the next 18 months, with immediate purchases expected as investors prepare for inclusion.

Currently, foreign investors hold less than 2% of Indian government securities, with concerns in the past about the implications of large debt inflows. The index inclusion is expected to reduce borrowing costs for the Indian economy and encourage more responsible fiscal policy-making.

Kotak Mahindra Bank predicts that foreign ownership could rise to 3.5% to 4% by the end of fiscal year 2025 as investors are attracted to the high-yielding Indian market. If global conditions improve, 10-year bond yields in India could drop from 7.19% to 6.95% over the next six to eight months, according to Bank of America's India country treasurer, Jayesh Mehta.

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