India's government bonds included in JPMorgan benchmarks, expected to benefit investors with diversification and higher returns.

From Morningstar: 2024-07-10 07:16:00

India’s government bonds are now part of JPMorgan benchmarks, making India one of the largest exposures in emerging bond indices. India’s solid economic fundamentals and inclusion in benchmarks are expected to benefit investors with diversification and higher returns. The rollout will happen gradually over 10 months, with a 1% inclusion rate per month.

India’s macroeconomic outlook has strengthened, boosting confidence in its bond market. India is expected to have a 10% weighting in the JPM GBI-EM Global Diversified benchmark index, alongside major issuers like China, Indonesia, and Mexico. Passive strategies in emerging market debt have shown a stable risk/return profile, outperforming active strategies over the long term.

Pradeep Kumar of PGIM Fixed Income expects India’s inclusion in the GBI-EM index to increase overall returns and add diversification. The index’s weightings will gradually increase by 1% per month, bringing around $35 billion into the Indian bond market. The introduction of India is expected to improve liquidity conditions and reduce volatility in the index.

Investors should be aware of risks when investing in emerging market bonds. Factors like US inflation, fiscal deficits in Brazil and Mexico, and the outcome of the US presidential election could affect rates and local currencies. Emerging market bonds face competition from developed market government bonds, which offer lower risk and real yields.



Read more at Morningstar: India Brings Yield and Low Correlation to EM Debt