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Rupee, bond markets cheer bond index inclusion

September 25, 2023

Rupee, bond markets cheer bond index inclusion
The government securities and forex market cheered the inclusion of India in JPMorgan’s Global Bond Index Emerging Markets, but gains were limited in both markets due to expected structure of index flows and broader market sentiment.

Market participants have lauded the move as positive for Indian money markets as it will bring in a new set of investors to the market. The fact that it is an index or passive fund, will ensure that there is a regular flow of foreign capital unlike under the FPI limits which remain under-utilised at around 15 per cent due to the need for active management.
 
The inclusion will be staggered over a 10-month period starting from June 2024, and is expected to support both the government bond and rupee markets.
 
“The JPMorgan Index fund has a corpus of around $216 billion so 10 per cent comes to about $2-2.5 billion every month. This money will start coming in a staggered way from June 2024. This is not a very disruptive flow for our market because government borrows approximately $15 billion a month, which makes the total monthly supply from index inclusion around 15 per cent of the demand,” said Gopal Tripathi, Head – Treasury and Capital Markets, Jana Small Finance Bank.
 
Government bond prices, which rose following the news, erased gains after lower-than-expected cut-offs at the ₹33,000 crore gilt auction on Friday as market participants refrained from bidding aggressively on expectations of further rise in US treasury yields and crude oil prices.
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