JP Morgan: No Friday blockbuster for bonds on JPM index

Mumbai: India’s much-heralded inclusion in a JP Morgan bond index got off to a muted start with a lower-than-expected quantum of foreign flows on Friday, belying expectations of an immediate deluge. Bankers, including a top executive at the US bank, said however that overseas investment worth billions will steadily be pumped into the debt market of the world’s fastest-growing major economy.

Indian bonds debuted in JP Morgan’s GBI-EM global index suite on Friday, with the country expected to reach a maximum weight of 10% in the GBI-EM Global Diversified Index over a 10-month period. JP Morgan’s analysts expect foreign investment worth $20-25 billion to flow to the local bond market from the move.

“The index inclusion would bring in new investments from international investors both active and passive, boosting overall liquidity in the system,” Kaustubh Kulkarni, senior country officer, India, and vice chairman, Asia Pacific, JP Morgan, told ET on Friday.

Sentiment Remains Optimistic
“The pool of active investment capital from FPIs could also spill over to other domestic bonds once they become more familiar.”

From Thursday to Friday, aggregate holdings of foreign portfolio investors (FPIs) in the index-eligible Fully Accessible Route (FAR) suite of government bonds increased by ₹1,545.16 crore to ₹1.86 lakh crore, showed data released by the Clearing Corporation of India Ltd at 6 pm. The increase left traders underwhelmed as some segments had bet on a surge of more than ₹10,000 crore on Friday itself.

“If you look at the increase in the FAR holdings by FPIs for the month of June, it is close to ₹ 17,000 crore, or $2 billion,” said Naveen Singh, head of trading at ICICI Securities Primary Dealership. “It seems clear that the flow will happen gradually over the month instead of a single-day move.”

Yield on the 10-yr benchmark government bond rose one basis point to 7.01% on Friday as the market tempered its expectations from the single-day FPI investment.

TRADERS EXPECT $2b INFLOWS
With the market now adjusting to how the flows from index inclusion may accrue, sentiment remained optimistic, traders broadly expecting around $2 billion a month. “This is likely to translate into about $2 billion inflows in government bonds monthly by funds that benchmark to the JPM index. The interest is not limited to managers that track the index, but a wider base of investors who are looking at India as a discretionary addition to the portfolio,” said Aditya Bagree, head, markets, Citi, India and Indian subcontinent.