Beginning Friday, JPMorgan’s widely followed developing market debt index will include India’s government bonds.
The September shift allowed billions of dollars to enter the world’s fifth-largest economy.
Five things to know as global bond investors invest more in South Asia and stock markets see greater portfolio inflows.
WHAT INFLOWS?
Indian bonds should receive $2 billion in index-tracking fund inflows around June 28, followed by a similar amount each month and at least $20 billion over the next 10 months as the country slowly reaches maximum weight in the index
The market has collected $10.5 billion from active fund managers and other investors since September’s announcement, about six times the amount from early 2021 to August 2023.
WHAT ATTRACTS FOREIGN INVESTORS?
India’s rapid growth, fiscal discipline, low currency volatility, and central bank promise to lower inflation attract global investors.
JPMorgan forecasts foreign ownership of India’s debt to almost treble by 2025 from 2.4%.
India has a positive real yield. The government’s budgetary discipline, minimal currency volatility, and moderate inflation make it more appealing than other significant developing economies.
How would large flows affect the rupee?
Dollar inflows could support the local currency, but the RBI is likely to absorb dollars and stockpile forex reserves, preventing a major appreciation.
India has the fourth-largest currency reserves at $652.9 billion. The currency gains indirectly because substantial buffers enable the central bank to act and moderate volatility.
India’s active central bank has kept the rupee the most stable among developing market currencies.
“Lower volatility of the Indian rupee makes it an attractive carry story,” said Amundi Asset Management co-head of emerging markets fixed income Sergei Strigo.
