"India, a Game Changer Ahead of Inclusion in Global Sovereign Bond Index"

India is poised to become a 'game changer' shaking up the market ahead of its inclusion in the global bond investment benchmark index this June, analysts say.

Economic media outlet CNBC reported on the 25th (local time) in an article titled "Why Indian Government Bonds Could Be a Game Changer" that following JP Morgan, Indian government bonds are also being included in the Bloomberg index, which is expected to bring in billions of dollars in capital inflows.

Last year, JP Morgan announced that it would include India in its Emerging Market Government Bond Index (GBI-EM) starting from the end of June. This is the first time India has been included in a global government bond-related index. Additionally, earlier this month, the Bloomberg index also decided to include Indian FAR government bonds in its emerging market currency-related index starting January 31, 2025.

These decisions are expected to expand investment sentiment toward India in the global bond market, leading to capital inflows. Deepak Agrawal of Kotak Mutual Fund predicted that from June, when the GBI-EM inclusion begins, there will be a "stable flow of $25 billion to $30 billion over approximately 12 to 18 months," adding, "Overall, this is seen as a move in the right direction." Goldman Sachs also forecasted that by April next year, when India's weighting in the GBI-EM index reaches 10%, capital inflows could reach up to $40 billion, or about $2 billion per month.

Invest India evaluated that "as a result of stable and long-term global investment, India's largest government bond investors, the Indian banking sector, will be able to provide more domestic loans, leading to infrastructure development and job creation." According to Invest India, as of October last year, the size of the Indian government bond market was approximately $1.2 trillion.

Kenneth Akinwi, head of abrdn, a global asset management firm, stated that while this index inclusion "does not necessarily make investing in India easier," it could serve as an incentive for a much broader range of investors to invest in India. Consequently, it is expected to lead to about $30 billion in passive capital flows. Fitch Ratings predicted that if inclusion expands to other indices, capital flows could increase further.

CNBC noted, "It has opened the door for foreign investors to access without limit," adding, "Until now, the largest buyers of Indian government bonds were institutional investors such as banks, but inclusion in global indices means that India's funding sources have expanded." FAR refers to government bonds that are not subject to foreign ownership limits.

Capital inflows have already been confirmed ahead of the index inclusion. According to Goldman Sachs, monthly inflows into Indian equity funds in February increased by $3.2 billion, the highest in 23 months. Foreign capital inflows for the third week of March (~March 15) were estimated at $2.2 billion.