India’s sovereign debt market gains global attention

This shift in perception represents a significant change from past decades when India was viewed primarily as a high-risk emerging market.

India’s $1.3 trillion sovereign debt market is poised for a significant boost as global fixed-income investors seek alternatives to Russia and China. This shift marks a new chapter in India’s financial evolution, following its rise to become the world’s fifth-largest stock exchange by market value.

JPMorgan Chase & Co. is set to include Indian government debt in its leading emerging-market bond index on June 28. This move is expected to trigger a substantial influx of global investment, with Goldman Sachs predicting an increase of up to $40 billion as financial firms adjust their portfolios to align with the new index composition.

The trend extends beyond JPMorgan, with Bloomberg Index Services Ltd. planning to incorporate India’s bonds into its offerings starting January 2024. Additionally, Britain’s FTSE Russell is considering adding India to its fixed-income indexes, further cementing the country’s position in the global debt market.

Jae Lee, a managing director at US asset manager TCW Group Inc., emphasizes the growing appeal of Indian debt, stating that there is a very strong case for India over the medium to longer term to have more of a place in people’s portfolios.

This shift in perception represents a significant change from past decades when India was viewed primarily as a high-risk emerging market. The country’s economic reforms since the turn of the century have played a crucial role in attracting more substantial foreign investment.

Despite the positive outlook, challenges remain. Gloria Kim, global head of index research at JPMorgan, acknowledged in May that there are still teething issues. However, she noted that market feedback so far has been largely positive, with the majority of our index clients already set up to trade.

As India’s sovereign debt market gains prominence, it is likely to attract a wider range of international investors, potentially leading to increased liquidity and stability in the country’s financial markets. This development could have far-reaching implications for India’s economic growth and its position in the global financial landscape.

The coming months will be crucial as investors and analysts closely watch the impact of these index inclusions on India’s debt market and the broader economy. If successful, this could mark the beginning of a new era for India in the world of international finance.