Most investors are active fund managers who have already increased their exposure to India ahead of its addition to the global bond index on Friday, as noted by Min Dai, head of Asia macro strategy. Since the inclusion announcement in September, India’s index-eligible bonds have attracted $10 billion. JPMorgan predicts this event could draw $20 billion to $25 billion in global flows into local debt.
India will initially hold a 1% weight in the index, rising to 10% over ten months. Investors are expected to add 8%-9% of their assets in India during this period if the rupee remains stable, monetary policy stays hawkish, and the budget deficit is moderate. Foreign ownership of India’s bond market is expected to nearly double to over 4.4% of outstanding bonds in the next year. The country’s inclusion will affect other markets like Thailand and South Africa. HSBC Plc highlights that key Indian bonds could track the performance of the 28 index-eligible notes, targeting maturities of 5, 7, 10, and 30 years. JPMorgan has proposed capping Asia’s weight at 40% to balance the index, potentially reducing China’s weight.