India, a nation long eager to shield itself from hot money flows, is already seeing market changes as a result of the money flooding in from its historic admittance into major global bond indexes.
Since JPMorgan Chase & Co.'s historic announcement in September, foreign investors have poured around Rs 7,800 crore ($9.4 billion) into qualified sovereign bonds and are starting to move up the ownership list. A range of assets are being impacted by the inflows; corporate bonds are outperforming their peers, and foreign currency reserves have reached a record level. The impact of the dollar's general rise has been ignored by the rupee.
"This is a noteworthy occasion. The eagerly awaited addition of India to the index ought to encourage further involvement from outside investors, according to Chidu Narayanan, head of Wells Fargo & Co.'s macro strategy for Asia-Pacific. The rupee would be supported by inflows of around $25 billion for Indian bonds by the middle of next year, he added.
Large Inflows
Bloomberg data shows that Indian Fully Accessible Route bonds, or FAR for short, which are slated to join the benchmark, have returned 2.8% in dollar terms so far this year thanks to the inflow of capital. Both a worldwide index of emerging sovereign debt and a measure of corporate and sovereign notes in emerging Asia have underperformed them.
They will rank among the top performers in local currency developing market government debt
in 2024 thanks to the inflows.
Currency Impact
Before the June deadline, senior economist at DBS Group Holdings Ltd. Radhika Rao noted that "you're seeing a bit of frontrunning." The majority of the flows are still anticipated to arrive "when the inclusion starts" and at the end of the year, when the JPMorgan index will fully incorporate India's ten percent weight.
The Reserve Bank of India's intervention has escalated as a result of the large inflows; it has been purchasing the incoming dollar flows, pushing its foreign reserves to a record $642.5 billion. The main goal of the intervention is to protect the rupee against erratic movements.
This year, the Indian rupee has done better than its regional counterparts, declining slightly vs a strengthening dollar.
Documentary Reserves
According to Bloomberg Economics, the Reserve Bank of India increased its purchases in recent weeks, spending $20 billion in total since the beginning of February.
Corporate Debt Securities
Since sovereign notes are mostly priced off corporate bonds, corporate bonds have also profited from inflows into government debt. Since the release of the index, the yield on the highest-rated 10-year notes has decreased by around 30 basis points.
Beginning in the next year, Bloomberg Index Services Ltd. will incorporate a portion of Indian bonds into its local currency index for developing markets. Bloomberg Index Services Ltd., which manages indices that rival those from other service providers, is under the parent firm Bloomberg LP.
