India Bonds: Joining JPMorgan’s Elite Emerging Market Index Club

In the grand theater of global finance, India is emerging as the golden chidya, the shining star that commands attention from the world’s financial titans. Rakesh Jhunjhunwala, often referred to as the “Big Bull of Dalal Street,” had once prophetically declared, “India ka time aa gaya hai ” during a conclave appearance. Now, as we stand at the threshold of a new era, it seems his optimism was well-founded.

Picture this: The Dalal Street maestro, Rakesh Jhunjhunwala, would surely be smiling from the heavens today as his foresight about India’s potential unfolds before our eyes. In a recent turn of events that could only be described as monumental, Indian government bonds are set to become a part of JPMorgan Chase & Co.’s prestigious emerging markets bond index, a recognition of India’s financial prowess on the global stage.

This is not just another inclusion; it’s an affirmation that the coming decade belongs to India. JPMorgan Chase & Co., the US investment giant, has formally announced the integration of Indian government bonds into their Global Bond Index – Emerging Markets index suite. The implications of this move are nothing short of awe-inspiring.

India’s weight in the GBI-EM Global Diversified Index (GBI-EM GD) is poised to surge to a maximum of 10%, a testament to the country’s economic might. Currently, a staggering 23 Indian Government Bonds (IGBs) with a combined notional value of US$ 330 billion are deemed index-eligible. The inclusion of these bonds will unfold over a strategic 10-month period commencing on June 28, 2024, and culminating on March 31, 2025, with a monthly 1% weight allocation.

To put it into perspective, the GBI-EM GD accounts for an estimated US$ 213 billion of the overall US$ 236 billion benchmarked against the GBI-EM family of indices. India’s rising star will shine even brighter in the global financial arena.

J.P. Morgan’s ’10/10 rule’ for country inclusion/exclusion in its EM indices will be diligently followed during this momentous phase-in period. As we witness this historic inclusion, we must remember that eligible instruments must have notional outstanding values surpassing US$ 1 billion and a remaining maturity of at least 2.5 years.

As we approach the commencement of this significant journey on June 28, 2024, only those IGBs designated as FAR (Foreign Account Tax Compliance Act) with a maturity date beyond December 31, 2026, will be evaluated for eligibility. Any newly issued index-eligible FAR-designated IGBs during the phase-in period will also be seamlessly incorporated.

India’s current local currency debt rating stands at BBB- / BBB- / Baa3 (Fitch / S&P / Moody’s), firmly establishing its market’s eligibility for the IG-only variant of the GBI-EM GD, known as the GBI-EM Global Diversified IG 15% Cap index. The weightage for India in this index is projected to reach an impressive 14.59%, with a careful phasing-in process spanning the next ten months.

But that’s not all. India’s ascension to global prominence extends beyond the GBI-EM GD. In the Asia (ex-Japan) local currency bond index (JADE Global Diversified), India’s presence will be felt over the same rebalance timeframe, expected to account for a substantial 18.48% weight. Furthermore, in the JADE Broad Diversified index, India’s weight will make an astounding leap from 10% to a commanding 20% during the 10-month phasing period.

As the world gazes upon India’s remarkable ascent, it’s not just the financial world that’s taking notice. Egypt’s recent placement on Index Watch Negative in the GBI-EM series highlights the challenges faced by benchmarked investors due to FX repatriation hurdles, underscoring India’s unique position as the beacon of stability and growth.

In a world where financial landscapes shift like sand dunes, India stands tall as the golden chidya, soaring to new heights on the wings of economic prowess. With Rakesh Jhunjhunwala’s prophetic words echoing in our ears, there’s no denying it—India’s time has indeed arrived, and the world is watching with bated breath as it prepares to take flight into an exciting and promising future.