JPMorgan's debt index to feature India's government bonds, expected to attract billions in inflows.

• Pal anticipates a more positive medium to longer term impact on the Indian bond market, despite the bonds already being included in the JPMorgan index and priced in.
• Over the past nine months, India has received approximately $10 billion in foreign investments in its bond market, according to Puneet Pal, head of fixed income at PGIM India Mutual Fund.

On Friday, JPMorgan will include state bonds in its emerging market index, leading to billions of inflows into India's rupee-denominated government debt market.

For the first time, Indian government bonds have been included in a global index.

Since the announcement, India's bond market has received approximately $10 billion in foreign investments over the past nine months, according to Puneet Pal, head of fixed income at PGIM India Mutual Fund, as stated on CNBC "Street Signs Asia."

JPMorgan announced that it would gradually include Indian bonds in its Government Bond Index-Emerging Markets, starting with a 1% weightage in June and reaching a maximum of 10% in April next year.

According to Deepak Agrawal, chief investment officer of debt at Kotak Mutual Fund, the inclusion of the index is expected to generate "stable flows of around $25 [billion] to $30 billion" over the next 12 to 18 months following the rebalancing period starting in June 2024.

The inclusion of Indian government bonds will positively affect the bond markets in the long run, according to Pal.

"The yields are expected to decline further, particularly in the long term, due to the robust macroeconomic fundamentals."

Pal stated that India's macroeconomic fundamentals were "strong and stable," with headline inflation remaining within the Reserve Bank of India's target range.

India's inflation rate for May was 4.75%, marking a fifth consecutive month of decline and the lowest rate since May 2023. The RBI's inflation target is 4%, with a tolerance limit of 6% and 2%. Pal predicts the rate to be 4.5% for India's financial year, ending March 2025.

He emphasized other positive aspects, such as a current account surplus in the first quarter of 2024, the stability of the Indian rupee, and a lower fiscal deficit of the country.

"The Indian bond markets are experiencing inflows due to the positive macroeconomic situation and fundamentals, leading to a positive outlook for the Indian markets," he stated.