The Wait Is Finally Over: India Gets Included in JP Morgan’s Global Bond Index

JPMorgan announced on Friday, 22nd of September, that India's domestic bonds will be added to the Government Bond Index-Emerging Markets (GBI-EM), a global index tracked by approximately $236 billion in funds.

This inclusion is scheduled to commence on June 28, 2024, and will be phased in over a ten-month period, with incremental increases of 1% in its index weighting till India reaches the maximum allocation of 10%.

While the newspapers are full of how this marks the coming of age of the Indian bond market, let us examine the possible implications on a realistic and nuanced scale.

First the big picture:

  • Yes, it should bring in some new funds into the Indian bond market. However, this will happen slowly. The inflows are anticipated at little above 21 billion US dollars over 10 months.
  • If India is added on to other bond indices as well, this can help bring down interest rates a bit in India.
  • The extra inflows are usually expected to help the local currency i.e. the Indian Rupee but given many other uncertainties in the Global macro economic environment, a strengthening is unlikely - though it may help stem the rupee depreciation slightly.
  • Since most of the money is going into longer tenure securities, it may reduce the term premium (the higher yields for longer tenor bonds compare to short term interest rates) in the Indian bond market.

Now for the details

The Historical Context

India initiated discussions in 2019 regarding the incorporation of its debt into global indexes and explored clearing and settlement arrangements with Euroclear. In 2020, it removed foreign investment restrictions on certain government securities as part of its strategy to gain entry into global bond indexes. As a result, several bonds are now classified under the "Fully Accessible Route" with no foreign investment limitations. Part of the reason India has entered this index is also due to the gap created by the sanctions on Russia, which have taken away a significant market.

Concurrently, FTSE Russell, another index provider, is considering India's inclusion in its FTSE Emerging Markets Government Bond Index and will announce its decision on September 28.

What are the Implications?

At a time when global bond markets are experiencing uncertainty, the news of Indian government bonds being included in global bond indices is expected to have a stabilizing effect on Indian bond yields.

To put it simply, this means that the interest rates on Indian government bonds are likely to remain relatively steady. For instance, the benchmark 10-year Indian bond yields have ranged from 7.09% to 7.25% in September. In contrast, similar 10-year US bond yields increased by more than 40 basis points (bps) i.e. 0.4 percent point during the same period.

Looking ahead, if other index providers also add Indian bonds to their indices, it could lead to a longer-term positive effect, potentially resulting in lower interest rates in India.

This inclusion could also offer some relief for the Indian Rupee, which has been trading near its all-time low value. However, this doesn’t take away from the fact that ultimately the macro-economic environment reigns supreme.

With oil prices back above $90 a barrel, strong upside momentum in US treasury yields and the dollar, caution is warranted.

In our opinion, there's unlikely to be any significant fall in bond yields in the near term.

Expected Inflows into Indian Government Bonds Which Are Under-owned By Global Investors

Now, let's delve into the specifics. India is expected to have a maximum 10% representation in the GBI-EM Global Diversified Index. Currently, there are funds worth $213 billion that use this index as a benchmark. This means that we can anticipate an inflow of approximately $21.3 billion as a result of this inclusion, which will happen gradually. It begins with a 1% addition to the index on June 28, 2024, and will reach the maximum limit of 10% by March 31, 2025.

To put this expected influx of funds into perspective, consider the foreign portfolio investment (FPI) in Indian debt since 2019. After 2019, there were three years of continuous net outflows from debt investments. Even with the recent net inflow of nearly $3 billion year-to-date, we have not yet recovered from the substantial net outflow of $11 billion observed in 2020. Therefore, the anticipated inflow of over $20 billion resulting from the index inclusion could play an important role in financing the increased deficits and absorbing the increased supply of government bonds.

Debt Investments in India by FPIs

Data Source: NSDL
*As of September 22, 2023**
Investments via the Voluntary Retention Scheme

Characteristics of the Index Inclusion Securities

It's essential to note that only bonds issued under the government's Fully Accessible Route (FAR) are eligible for index inclusion. These FAR securities have no foreign portfolio investment limit.

 To be eligible, these bonds must have a maturity of more than 2.5 years and a total outstanding size of at least $1 billion. This narrows down the selection to 23 out of the 31 bonds issued under the FAR route, with a combined outstanding value of $338 billion.

What's noteworthy is that the bid-offer spread (the difference between buying and selling prices) for FAR securities is more favorable compared to the current emerging market bonds in the index.

Additionally, FAR securities are significantly under owned by foreign portfolio investors, with only $9 billion invested in them compared to a total outstanding value of $338 billion. As a result, there is a significant potential for substantial foreign portfolio investment inflows into these securities.

The weighted average maturity of these eligible FAR securities is relatively long, at 12.3 years. Nearly 40% of the incoming funds are expected to flow into Indian government securities with maturities of 10 years or more. This could lead to a reduction in the term premium.

Term premium, in simple terms, represents the extra yield that longer-term bonds offer compared to shorter-term ones. Historically, this premium has averaged around 90 basis points (0.9%). In other words, 10-year bonds, on average, yield 0.9% more than 1-year bonds.

Source: CCIL, First Global

However, the term premium is influenced by economic cycles. During periods of interest rate cuts, short-term bond yields tend to fall more compared to longer-term yields, steepening the yield curve and increasing the term premium. Conversely, during rate hike cycles, as we are witnessing now, the term premium can decrease or even turn negative.

If the supply of government bonds with maturities of 10 years and above does not increase to match the expected demand from passive inflows, we could see a decline in the term premium as demand outpaces supply.

Looking Ahead

In the long term, the movement of Indian bond yields is expected to align more closely with the global economic environment. This is because active investors may also increase their participation in Indian bonds.

The volatility of flows may increase during times of global financial stress as assets under management of the emerging market bond funds fluctuate. Currently, foreign portfolio investors are utilizing only 23.8% of the allotted limits for investing in Central Government Securities.

Considering the current global scenario, including the price of Brent oil at $90 a barrel, the US dollar's strong performance with a 5.5% yield advantage, and Indian government bond yields hovering around 7% with real yields slightly lower than those of their US counterparts, it is unlikely that we will see a significant rally in Indian government bonds.

Therefore, it's advisable not to make investment decisions solely based on this news unless there are other relevant macroeconomic developments to consider.

From Your Friends at First Global

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For me, the first step was exactly 30 years ago...I resigned from Citibank on August 23, 1993.

It's been a long journey since; from getting the coveted BSE card to making it as the only investment professional in the 'Most Powerful Women' listing in Fortune.

Being a special day allows me the indulgence of going back into memory lane and some of the landmarks and turning points.

Starting with the memories of that long ago August day when almost everybody I met in the corridors of Citibank asked me, "Devina, what happened? You are looking so happy."

Step One was the membership of the Bombay Stock Exchange and suddenly the proverbial connecting of the dots in hindsight happened, to make my goal manifest against all odds!

Of course, the old-time Bombay Stock Exchange (BSE) brokers didn't want outsiders but much of my past life came together to make it happen:

  • The 5 years I reluctantly spent in investment banking which gave me the required capital market experience
  • The two extra marks for my IIM gold medal that pushed me over the cut off
  • And then my experience as a credit analyst which became the launchpad for becoming a pioneer in security research

How long back that was can be seen from the famous HDFC Bank report, with my name as Member, BSE because those days only proprietorship or partnerships were allowed as brokers...not companies.

Then came the heady 90s as one of the top brokers to institutions, esp Foreign Institutions.

But again as the new learning began to fade towards the end of the 90s, I decided to go global.

And let me tell you, no person endorsed this move.

All experienced hands in global markets said it could not be done; that you could not research securities sitting remotely and even if you did, no one would listen to you on global companies... when they had all these old established Wall Street firms to choose from.

But I had faith in my craft and my analysis and that's how First Global became not just the first Indian but the first Asian firm (ex Japan) to go global with membership of the London Stock Exchange in 1999 and NASD the year after.

A new experience of understanding more complex companies, geographies and economies...most gratifyingly, being recognized for quality research by every single major publication in the world...Yes, it could be done😎

What next was the question and over time one became a bit restless with sell side work where even after all your analysis and conviction, the fund manager may not take the decision due to reasons of their own.

The logical step was to move to direct fund management.

Started that with Global assets in 2015 and then was trying to understand the best way of moving forward as the investment landscape itself changed.

The challenge was whether you adapt to the changes or become a fossil still chanting the mantras of the 80's and 90s when the world had totally transformed and required a new set of skills.

Do you continue to sell combustion engines cars forever, or move to electric vehicles?

So the next Big transformation was to move to a Human plus Machines system, driven at the core by Artificial Intelligence and Machine Learning where all the expertise gathered over the decades was coded into a rigorous machine system which could then be applied on a bias-free, noise-free basis on the entire universe of securities available.

These have been exciting times with returns of our both Indian and global Asset Management products being right on top of the heap.

The excitement of the business I entered 30 years ago has never faded for me because the learning has never disappeared.

Not many careers in the world where 30 years on you can still be learning everyday, where you don't know it all and you can't know it all. Your craft has to be constantly refined. That is the part that puts a smile on my face every morning.

And yes many miles to go before I sleep.

Need all your blessings🙏

From the desk of 

Devina Mehra

If you want any help at all in your wealth creation journey, in managing your Investments, just drop us a line via this link and we will be right by your side as your wealth advisor, super quick!
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I found the US Federal Reserve Chair Powell's speech at Jackson Hole reasonably hawkish...the repeated mantra of 'We will do what it takes to bring down inflation to 2%' continued.

The low hanging fruit on inflation is come the hard miles, to mix up my metaphors.

There are three components to core (non food and fuel) inflation.

1. Goods inflation which has come down, partly as the supply disruptions were gone. However there may be some long-term structural upward pressure as globalization partly reverses with on-shoring, near-shoring etc.

The Pandemic showef the risk of sourcing supplies from far away even if those were the least expensive on paper.

2. Housing or shelter related inflation, which while coming down, is moving slower than expected and part of the reason paradoxically is the Fed's own raising of interest rates.

Interest rates are raised to reduce demand for goods and housing. But this time there is a significant unexpected consequence.

The difference between the current rate to take out a mortgage (7%) versus the average rate on mortgages outstanding (3.6%) is the widest since the early 1980s!

In simple terms this means that anyone with a fixed rate mortgage cannot or will not sell their property as any new property will have to be financed at the new rate.

Hence old homes are not coming on the market for resale.

Homebuilders benefit from limited supply in resale market, as buyers then have to buy newly built homes.

3. The third component of core inflation is a category called non housing services where, as Chair Powell pointed out, the labour component is significant and since the labour market in the US remains tight, this component is not coming down fast enough.

The message remains same as ever... watch the macro data to see the Fed will likely do next.

From the desk of 

Devina Mehra

If you want any help at all in your wealth creation journey, in managing your Investments, just drop us a line via this link and we will be right by your side as your wealth advisor, super quick!

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Long-term objective data analysis always shows up interesting facts.

The condition is that you have to leave your biases, proclivities, what you want to believe etc aside & just look at what the data tells you.

And this is what the data on manufacturing in India tells us.

Manufacturing is a big thrust area for us, as it should be...more so, as it drives job creation as well.

The long term data (from the World Bank) reveals some interesting things:

  • India's Manufacturing to GDP ratio was 13.3 percent for 2022 ie manufacturing was 13.3% of the GDP.
  • Last time it was at this (low) level?


Yup 55 years ago.

  • In fact from 1972 onwards it fell below 15%, let alone 14%, for the first time in 2018.
  • The best period?

The 5 years 2006-10. During this time, it was above 17% in 4 years, marginally below in one year.

  • In this period (2006-10) the Manufacturing output (in US Dollar terms) compounded 16.8% per annum...more than doubling.

In the last 5 years, it has compounded 2.5%...and the fall came pre-Covid.

For the growth of the economy as well as generating employment for our young people, it is important to focus on manufacturing alongside services.

Do let us know what you think.

From Your Friends at First Global

If you want any help at all in your wealth creation journey, in managing your Investments, just drop us a line via this link and we will be right by your side as your wealth advisor, super quick!
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This was India in 1947:

  • Life expectancy 32 years (most South East Asian countries were almost 20 yrs ahead)

  • Literacy 18%

  • GDP growth sub 0.5% per annum for over 50 years (Yup. The 'Hindu' rate of growth was an 8-fold increase over the growth in the first half of the 20th century)
  • Negligible capital as the Raj was about building capital in Britian, not India
  • Dire poverty

We have come a very long way since and must always remember all those who fought for our freedom, giving up years of their life…or even their life itself.

And those who put a framework in place: who had the vision, strategy and execution to take a road no other post colonial nation took.

I do not think we appreciate enough that the path with took was not the only one possible.

It was not inevitable, or even easy!

In 1947, almost no one would have bet on our surviving as an united nation for 75 years, with a functioning democracy.

Why a Constitution that has lasted 75 + years is itself an outlier in the 900 odd constitutions the world has seen.

It took a lot of thinking, passion and execution.

Even a simple thing like Universal Franchise was not the norm.

Let alone developing countries of Africa and South America; Switzerland gave voting rights to women only in 1971.

Canada, Australia and United States gave voting rights to their ethnic minorities only in the 1960s.

There is no other parallel even till date of a post colonial nation at anywhere close to those poverty levels, making a smooth transition to a liberal democracy.

Most fell into various forms of civil strife, military takeovers and where there were charismatic leaders, they became dictators (eg Indonesia and later, Philippines).

AND none of those Nations had the added challenges of India in terms of diversity of languages, cultures, religions etc.

I repeat none of this was accidental. To give only one example:

Both India and Pakistan had armies which had the same origin so why is it that Pakistan had military coups and military dictators, and we did not? It was part of a step by step process to ensure that the military remains under civil rule.

Those who founded the country did their bit, now it is on us.

Let us not take what we have for granted.

Two areas to my mind for focus: Job creation and Technology/Science/ Innovation.

The latter is an area where we went above and beyond in our early decades. No other country at that stage of development even dreamt of areas like atomic energy & space research!

The rest of Asia had barely any Management institute even till the 1990s - 30 years after the IITs and IIMs.

Even in the '80s it appeared strange to many, including myself, that how could a Prime Minister talk of computers & telecommunication being a priority in a poor nation - but that's what vision is about.

That is what drove the economy & job creation for decades on end.

But we've taken our eyes off the ball in the last few decades and are getting left behind in the innovation game. China is extremely focused on every new area of technology from neuroscience & biotechnology to renewables & semi conductors.

Our demographic dividend will also dissipate if we can't find jobs for young people and specially for women.

We need to do our bit to be worthy successors to those who gave us a free nation

Jai Hind!

Happy Independence Day   india  india

From the desk of 

Devina Mehra

If you want any help at all in your wealth creation journey, in managing your Investments, just drop us a line via this link and we will be right by your side as your wealth advisor, super quick!

Or WhatsApp us on +91 88501 69753

Chat soon!


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The famous HDFC Bank report, that one year after its IPO (split adjusted price of Rs.3.8) said that this baby would become a world champion, like Arnold Schwarzenegger! And now with the merger, it will become the fourth largest bank in the world by market cap.

What a dream run it's been!

Some predictions do come true.

Since many of you have been asking for it, here is the Blast from the Past!

Click to download the report


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