Indian bonds are poised to rally as JPMorgan Chase & Co. is likely to announce the addition of the asset category to its emerging markets bond index as soon as mid-September, according to Morgan Stanley.
(Bloomberg) — Indian bonds are poised to rally as JPMorgan Chase & Co. is likely to announce the addition of the asset category to its emerging markets bond index as soon as mid-September, according to Morgan Stanley.
“The index team now has more incentive to include India on the back of Russia’s exclusion and most GBI-EM investors either support or don’t object to the inclusion,” strategists Min Dai, Madan Reddy and Gek Teng Khoo wrote in a report, citing feedback from emerging market investors. The bank recommends being long the rupee and 10-year bonds — on which it expects yields to drop by 25 basis points from current levels.
Morgan Stanley joins Goldman Sachs Inc. in expressing optimism over index inclusion, which may attract $30 billion of foreign inflows in the next fiscal year. That’s renewed a buzz in the Indian bond market after the move was seen on a back burner since February, when the government desisted from easing tax rules to enable inclusion when the fiscal budget was presented.
The progress on the global bond inclusion has not been as fast due to the pandemic and evolving global situations, Finance Minister Nirmala Sitharaman said Monday at an event. “I am sure it will come to its logical conclusion sooner.”
India will achieve 10% in the GBI-EM index once inclusion is completed at the expense of Thailand, Poland, South Africa, the Czech Republic and Brazil, Morgan Stanley said. Investors need a long lead time, hence the actual inclusion may happen in the third quarter of 2023, the bank said.
Foreign funds invested $538 million in Indian rupee bonds in August amid the index inclusion buzz, after six months of continuous outflows. The yield on the benchmark 10-year bond fell one basis points to 7.22% on Monday.
Almost 60% of real money investors are fully ready for index inclusion or almost ready, as per Morgan Stanley’s survey. “After many years of waiting, the global bond index inclusion for government bonds could finally happen,” it said. “We see a good chance that JPM will announce the inclusion in September, surprising the market.”
Bloomberg LP is the parent company of Bloomberg Index Services Limited (BISL), which administers indexes that compete with indexes from other providers.
(Updates with Finance Minister’s comment in the fourth paragraph)
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