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JPMorgan will include 23 Indian government bonds worth $330bn into its Government Bond Index-Emerging Markets benchmark © PIYAL ADHIKARY/EPA-EFE/Shutterstock

JPMorgan will add India to its benchmark emerging-market bond indices, a move that investors expect will attract billions of dollars of inflows to the country’s government debt market.

The inclusion to JPMorgan’s influential indices concludes years of negotiation between banks, investors and India’s government.

It will give investors greater exposure to the world’s fifth-largest economy as providers work to diversify their indices after Russia was removed over its invasion of Ukraine and growth slows in China.

The US bank will include 23 Indian government bonds worth $330bn into its Government Bond Index-Emerging Markets benchmarks from June 2024. The country would have a maximum weight of 10 per cent on the index, said JPMorgan on Thursday.

The resulting inflows into India’s government bond market could reach $25bn-$26bn as investors who track the index rebalance their portfolios, said Madhavi Arora, lead economist of Mumbai-based financial group Emkay Global. Goldman Sachs has previously pegged the figure at $30bn.

India bonds and the rupee advanced at the open. The 10-year yield fell six basis points to 7.13 per cent, and the currency rose 0.2 per cent to 82.8 against the dollar.

In the “last two years there has been a lot of demand to the index provider from the investors” for India’s bond inclusion, said Jayesh Mehta, India country treasurer at Bank of America. “With China slowing down and Russia being out, the emerging market tracking investors do need something.”

In 2020, India’s central bank introduced rupee-denominated bonds that had no restrictions on foreign ownership, paving the way for JPMorgan to add India to its index. It said in its announcement late on Thursday that its indices would include only “fully accessible route” bonds.

JPMorgan is the first major emerging market benchmark provider to add India. Bloomberg and FTSE have not included the country. India’s economy has outperformed many of its emerging market peers, with the south Asian nation’s Nifty 50 benchmark hitting all-time highs this year.

Tapping global markets should help New Delhi reduce its cost of borrowing. Yet the downside could be the arrival of active investors who may sell faster than passive tracker funds in a downturn. “That could be painful,” said Mehta.

Some bankers hope JPMorgan’s move will encourage rating agencies to lift their assessment on India — S&P, Fitch and Moody’s all give India their lowest investment-grade rating.

“Hopefully rating agencies will respect investors’ viewpoint,” said Nilesh Shah, managing director at mutual fund Kotak Mahindra AMC.

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