Indian government bonds may be added to a global index next year, triggering passive inflows of about $30 billion that will help the country to finance its current account and fiscal deficits, according to Goldman Sachs Group Inc.
The nation’s sovereign bonds may be added to JPMorgan’s GBI-EM Global Diversified bond index with an initial 10 percent weightage, analysts Danny Suwanapruti and Santanu Sengupta wrote in a note to clients.
India’s $1 trillion sovereign bond market is one of the biggest emerging markets not to be part of any global index.
Goldman’s optimism comes even as the index inclusion has largely gone on the back burner after New Delhi desisted from making any tax changes for foreigners that would have helped Indian bonds settlement on international clearing platforms like Euroclear.
The analysts wrote that both Chinese and Indonesian government bonds though not Euroclearable are part of the JPMorgan index.
“Adding India, which is a large, deep, and high-yielding market, would help to diversify as well as boost the average yield of the overall index,” the analysts wrote. “Such a move would be beneficial to various stakeholders, including EM investors and the Indian government.”
Benchmark 10-year yields fell 11 basis points to 7.18 percent on Wednesday as the markets reopened after an extended weekend.
Account openings for foreigners are still cumbersome in India but can be addressed by a longer lead time for inclusion, according to the note. The country has also made some progress on operational issues, like posting margin requirements and extended settlement timings, the analysts wrote.
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