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 78,000 crore ($9.4 billion) into qualified sovereign bonds and are starting to move up the ownership list. Foreign exchange reserves reached a record high, corporate bonds are outperforming peers, and the rupee has weathered the blow of a wide rise of the dollar.

In advance of the major index shift at the end of June, the following charts illustrate the current situation in Indian markets.

"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

The inflow of capital has contributed to the 2.76 percent dollar return this year for Indian Fully Accessible Route bonds, or FAR bonds for short, which are scheduled to enter the market, according to Bloomberg statistics. 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 represent India's full 10% weight.

The Reserve Bank of India has escalated its intervention in response to the large inflows, purchasing incoming dollar flows and pushing the country's foreign reserves to a record $642.5 billion. The main goal of the intervention is to protect the rupee against erratic movements.

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.