JPMorgan's Jahangir Aziz Says RBI Got 'Cold Feet' Post Gilt Inclusion

JPMorgan's Jahangir Aziz sees some "cold feet" from the government and the Reserve Bank of India after India's gilts were added into the JPMorgan Chase & Co.'s benchmark emerging-market index.

India's sovereign papers were added to the index after a lot of negotiations and reforms by the government, said Aziz, head of emerging markets economics research and commodities at JPMorgan.

Post inclusion, "for reasons that I am not exactly sure," India's debt manager decides to not let the 14-year and 30-year maturity any longer be counted as automatically approved for foreigners, he told NDTV Profit.

"I find the logic very hard. You want pension funds in the US and Europe to invest long-term and the way to do it isn't by taking away long-term instruments," he said.

In late July, the RBI announced the exclusion of government securities with 14-year and 30-year tenors from the Fully Accessible Route for foreign portfolio investors. This decision was followed after a review and consultation with the government.

Maybe they have a master plan, but it's very hard to see that at this point, he said.

There will be no impact on the yield curve and in forex, with more inflows as a result of this inclusion, Aziz said. "RBI will intervene with any dollar that comes in and they will go into the bond market there to make sure that the yield curve remains where it is."

India runs a current account deficit and the RBI rightly believes that every dollar earned is a liability and not an asset, he said.

The tariffs that the second administration of Donald Trump may impose on China would hurt emerging countries, especially Indian manufacturers, Aziz said.

China will react by depreciating currency if the 60% tariffs that Trump proposes will come into effect, he said. The products become cheaper in India as currency depreciation in China will take effect, he said. "Every manufacturing exporter will get affected instantly with a seriously more competitive CNY."

What happens to the US and China just on the tariff side has a significant spillover impact on other emerging markets, including India, Aziz said. "Something which I find shockingly absent in India about what might happen or the impact of election risk on India."