JPMorgan’s recent announcement regarding the inclusion of Indian sovereign bonds in its global bond indices has sent ripples throughout the financial landscape. This decision holds profound implications for Indian government securities and the broader economic context.

In this episode of the State of the Economy podcast, Lokeshwarri SK talks to Mahendra Jajoo, Chief Investment Officer, Fixed Income, Mirae Asset Investment Managers. Jajoo helps decipher on the implications of this move.

The discussion looks at the intricacies of this development, which marks the culmination of prolonged anticipation within financial circles. The inclusion of Indian government bonds into the JPMorgan Bond Index is a testament to India’s growing prominence in global financial markets.

Mahendra Jajoo elucidates the pivotal role played by a freely accessible route introduced by the Indian government several years ago, which paved the way for this achievement. The podcast looks at the timeline for this inclusion, scheduled to commence in June 2024, with the 10% threshold expected to be reached by March 2025.

The podcast also explores the potential impact on Indian bond yields. Despite initial market volatility, Mahendra Jajoo emphasises that global economic factors, including inflation and growth rates, make a significant decline in bond yields an improbable outcome in the short term.

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Inclusion will start on June 28, 2024, and extend over 10 months with 1% increments on its index weighting, as India is expected to reach the maximum weighting of 10%

JPMorgan to include India in emerging market debt index, opening doors for billions in investments

Equity-like returns likely for long-term investors in government bonds

The conversation extends to the prospect of other index providers, such as Bloomberg and FTSE, following suit. Jajoo expresses a positive outlook, underlining the robustness of the Indian market and the geopolitical considerations that favor the inclusion of Indian sovereign bonds in their indices.

Mahendra Jajoo addresses concerns pertaining to foreign investors’ past reluctance to utilize their investment limits for Indian bonds. He postulates that, as global interest rates stabilize and alternative market opportunities diminish, India’s attractive yields and stable market conditions are poised to attract heightened foreign investment.

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