BofA Weigh In On JPM GBI-EM Inclusion

After the JPM GBI-EM index inclusion announcement re: Indian bonds Bank of America note that “there will be a lead time of nine months, with inclusion taking effect from end-Jun'24, with the weight increasing 1% every month, reaching the index ceiling of 10% by end-Mar'25.”

• “The assets tracking the index have been mentioned as being ~US$210bn, which implies passive inflows of ~US$21bn by Mar '25.”
• “No commitments have been made from the government on any potential tax changes to facilitate Euroclear or operational issues.”
• “The flows will be substantial for FY25 in providing stable funding for IGBs and cushion on BoP against widening of current account deficit.”
• “IGBs have seen steady inflows this year although they are not large in historical terms, which leaves room for more active inflows ahead of actual inclusion.”
• “FX has reacted positively to the news, however, further appreciation in the near-term may be muted due to limited flows and the RBI potentially using the idiosyncratic move in INR to replenish reserves.”
• “With mixed factors on portfolio flows vs risk of higher oil and limited carry, we think the INR may remain range-bound. Follow-up inclusion by other global indices including Bloomberg Barclays and FTSE could build further on these flows and lead to expectations of additional USD 20 Bn inflows based on India's expected weight in these indices.”