India's inclusion in the JPMorgan Chase & Co. (NYSE:JPM)'s emerging market index will make the country's bond market a more accurate reflection of its "macroeconomic realities," according to Jahangir Aziz, head of emerging markets economics research and commodities at JPMorgan. Speaking to BQ Prime at the JPMorgan India Investor Summit, Aziz emphasized that the participation of foreign investors would broaden the Indian government's funding base and ensure better price discovery for its debt.
Aziz further explained that a larger pool of investors would make the Indian debt market more resilient to external liquidity shocks. He suggested that over a period of 2-4 years, Indian bonds would begin to mirror macroeconomic realities more closely. This shift would mean investors could opt out of the bond market if fiscal discipline is not upheld.
This development comes after ICICI Bank predicted on Thursday that India's bond market could receive up to $10 billion before JPMorgan incorporates the nation's debt into its emerging market index in mid-2024. B. Prasanna, the Group Head for Global Markets Sales at ICICI Bank, also anticipated that if debt inclusion in other indexes, such as the Bloomberg Global Aggregate, occurs, flows might escalate to $50 billion by the end of next year.
Prasanna noted that despite Indian bonds not showing immediate gains post-announcement, they have demonstrated resilience amid global macroeconomic pressures. These pressures include surging crude prices and U.S. Treasury yields. Prasanna also expects Indian yields to drop to around 7% once passive inflows start and as global challenges subside.
On Thursday, the yield on the 10-year bond increased by five basis points to 7.22%. Prasanna anticipates that the rupee, which has been close to its historic low, will trade within a range of 82-84 against the dollar. He also expects the Reserve Bank of India to continue acquiring dollars, thus limiting significant appreciation in the local currency.
As India's general elections in 2024 approach, government spending is expected to surge, potentially affecting fiscal balances. Aziz, however, urged market players to look beyond such spending announcements.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.