According to the JP Morgan report, “Indian bonds will be included in the GBI-EM Global index suite and all relevant derivative benchmarks, beginning 28th June 2024.” The GBI-EM series was launched by JPM in June 2005 and GBI-EM Global Diversified (GBI-EM GD) is one of the most popular amongst the six versions of GBI-EM series due to its diversification weighting scheme and country coverage. India is expected to reach maximum weight of 10 per cent in the GBI-EM GD and 8.7 per cent in the GBI-EM Global Index with 23 Indian Government bonds (designated under the Fully Accessible Route) being eligible to be included in these forms of the index. With this, the Indian bonds will now be at par with other emerging market bonds such as China and Indonesia, which enjoy a weightage of 10 per cent in the said index. Indian bonds are also expected to enter other JPM indices such as JADE Global Diversified Index, JADE Broad Diversified index, JESG GBI-EM. This has also triggered expectations of announcement of inclusion by other major indices by FTSE Russel and Bloomberg Barclays.

Inclusion Details

The GBI-EM GD, which accounts for nearly USD 213 bn of the USD 236 bn benchmarked to the GBI-EM family of indices, is likely to see a staggered inclusion of the FAR designated Indian government securities over a 10-month period beginning from June 28th 2024 to 31st March 2025, with an increment of 1 per cent every month. This is likely to translate into inflows approximating USD 21 bn over the 10-month period. This is a meaningful inflow (approximating Rs. 1,70,000 crore) and will have favorable implications for the demand and supply dynamics in the Indian debt markets. Another caveat is that only securities with residual maturity of at least 2.5 years and an outstanding notional of USD 1 bn will be assessed for eligibility at the time of inclusion.

What does the inclusion entail?

The index inclusion entails boost in demand for government debt as well as an improvement in outlook for the domestic currency with expectations of greater inflows in the local debt. The index inclusion will lead to creation of an additional demand side in the ensuing financial year, and the inclusion eligibility will be subjected to periodic reviews. With short dated securities kept out of the purview of index, benefits may not accrue to the short end of the term structure. With 5 to 10-year maturity securities accounting for almost 50 per cent of the outstanding currently designated under the FAR and index eligible and taking into account the fact GBI EM GD’s current duration is approximately ~5, the 5 to 10-year bucket is likely to see greater inflows on account of the index inclusion.