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The Event

* JPMorgan Chase & Co. will add Indian government bonds to its benchmark emerging-market

(EM) index.

* Assets worth ~ USD 240 billion track the JPMorgan emerging market bond index.

* Indian bonds will have a maximum weight of 10% on the index.

* Inclusion will be staggered over 10 months starting Jun 2024 till March 2025 at roughly 1%

weight per month.

What led to the inclusion

* The Indian government began discussing the inclusion of its securities in global indexes as far

back as 2013. However, its restrictions on foreign investments in domestic debt held that

back.

* In April 2020, the Reserve Bank of India introduced a list of securities that were exempt from

any foreign investment restrictions under a "fully accessible route" (FAR), making them eligible

for inclusion in global indexes.

* JP Morgan identified 23 Indian government bonds with a combined notional value of USD 330

billion eligible for inclusion.

* About 73% of benchmarked investors voted in favor of India's inclusion.

Possible Impact

* The inclusion would bring in estimated inflows of USD 30-40 billion to India. Post that an

additional flow of USD 10-15 billion is expected from other index providers and active

investors.

* So far, banks, insurance companies and mutual funds have been the largest buyers of

government debt. An additional source of funds will help cap bond yields and the

government's borrowing costs.

* This could lead to reduction in cost of capital and in turn also benefit other asset classes.

* The potential foreign inflow will strengthen India’s balance of payment and deepen the market

for INR.

* GOI can implement additional reforms and safeguard measures in coming months to deal with

any outsized impact of large inflows/outflows.

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