JP Morgan India bond index inclusion impact: Weight cut likely for 3 EMs

To accommodate India's 10 per cent weight in the GBI EM index, HSBC said in a recent note, a reweighting will occur for other EM peers in the index, which will see a reduction in their weights.

Retail inflation is gradually easing, but volatile and elevated food prices are interrupting the path of disinflation, the RBI Bulletin said on Wednesday.

An article on the "State of the Economy", published in the June 2024 Bulletin, said global growth was resilient in the first quarter of 2024, and many central banks have pivoted towards a less restrictive monetary policy stance in response to the fall in inflation in their economies.

In India, high-frequency indicators suggest the real GDP growth in Q1 FY2024-25 is broadly maintaining the pace it achieved in the preceding quarter.

Also, the prospects for agriculture are brightening with the early landfall of the southwest monsoon, said the article authored by a team led by Reserve Bank deputy governor Michael Debabrata Patra.

"Headline inflation is gradually easing, driven by sustained softening of its core component, although the path of disinflation is interrupted by volatile and elevated food prices," the authors said.

The RBI has been mandated by the government to ensure retail or headline inflation remains at 4 per cent with a margin of 2 per cent on either side.

Earlier this month, the RBI's monetary policy committee (MPC) voted to keep the policy repo rate unchanged at 6.50 per cent and reiterated its stance of remaining focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target while supporting growth.

The central bank has projected the inflation to ease from 5.4 per cent in 2023-24 to 4.5 per cent in 2024-25, with evenly balanced risks from the rising incidence of adverse climate events, pressures from input costs and volatility in crude prices, among others.

The RBI said the views expressed in the Bulletin article are of the authors and do not represent the views of the central bank.

The size of Gsec market stands at $1.3 trillion with about 112 securities. However, foreign investment without any investment restrictions is permitted only in certain liquid benchmark securities, which are categorised as securities under the Fully Accessible Route (FAR). The Reserve Bank of India (RBI) classifies any new issuance in 5-year, 7-year, 10-year, 14-year and 30-year tenors under the FAR category. 

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“Currently, there are 38 FAR issues (outstanding amount: $482 billion). Out of these, only securities with a residual maturity of more than 2.5 years, a minimum outstanding amount of $1 billion and non-green issues are eligible for inclusion in the GBI EM index. This leaves 28 securities eligible for index inclusion, which at current market value will carry a weighted average modified duration of 7.06, a weighted average maturity of 12.3 years, and a weighted average coupon of 7 per cent in the index,” HSBC said.

HSBC expects the 5-year, 7-year, 10-year and 30-year benchmarks could be the key target of foreign flows going ahead, given the low foreign positioning, their availability through auctions, and the relative increase in their index weight versus other bonds.