India’s $1 trillion government bond market has struggled for years to rise above the criticism of being insular.
That is set to change after JPMorgan Chase & Co. Thursday became the first global index provider to include them on its emerging markets index. The decision sets the stage for billions of dollars of inflows just when the bond market is straining under record government borrowings.
The move buttresses India’s aspirations for a bigger global heft as it boasts one of the world’s fastest rates of economic growth and positions itself as an alternative to China. At the same time, the inclusion will open up the nation’s public finances to greater scrutiny from foreign investors, likely increasing the volatility of local markets.
Goldman Sachs Group Inc. expects inflows of more than $40 billion from active and passive funds over the next 18 months. The purchases will be “front-loaded, beginning immediately, as investors pre-position for inclusion,” strategists led by Danny Suwanapruti wrote in a note Friday. The index news “should structurally augur well for rates and forex markets, leading to lower cost of borrowings for the economy and more accountable fiscal policy-making,” said Madhavi Arora, lead economist at Emkay Global Financial Services Ltd.
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