JP Morgan predicts a significant increase in non-resident holdings of India Government Bonds (IGBs) over the next year, from 2.5% to 4.4% of outstanding. This growth is supported by various measures taken by authorities to enhance the accessibility of the IGB market for foreign investors. India is also set to join J.P. Morgan’s Emerging Market Local Currency Government Bond indices, further boosting investor interest.
Only bonds classified under the Fully Accessible Route (FAR) will be eligible for index inclusion, with 27 FAR-designated IGBs meeting the criteria. Global Head of Index Research at J.P. Morgan, Gloria Kim, highlighted India’s market reforms that have made IGBs eligible for index inclusion. The expected foreign inflows following index inclusion are estimated to be between US$ 20-25 billion.
Upon inclusion, India will have the highest duration and above-average yield-to-maturity across the index. JP Morgan notes ample scope for non-resident participation in India’s local bond market, with the local debt stock being one of the largest in Emerging Markets. The phased inclusion of Indian bonds in the index is expected to drive sustained demand and maintain higher bond prices.
JP Morgan’s analysis indicates that India’s local bond markets offer value for non-resident investors, with positive total returns in most years. The return profile and low volatility make Indian bonds attractive for investors. Overall, the outlook for India’s local bond market is positive, with increased foreign participation expected in the coming year.