India's Entry Into JPMorgan Bond Index Comes With Promise Of Cheaper Funding

(Bloomberg) -- Fund raising by Indian corporates would be cheaper after JPMorgan Chase & Co. Friday added the country’s sovereign bonds to its emerging markets index, according to Kaustubh Kulkarni, the Wall Street bank’s senior country officer for India and vice-chair for Asia Pacific.

“With the foreign investor share in India government bonds getting larger, the domestic investors will be able to focus on the broader debt issuances from Indian companies, creating an opportunity for further lowering the cost for corporate fund raising,” Kulkarni told Bloomberg News on Friday. 

JPMorgan expects $20 billion to $25 billion of global flows to come in over the next 10 months, raising foreign ownership to 4.4% from 2.5% currently. The inclusion potentially opens up a $1.3 trillion market to a broader range of investors and could see the banking system awash with cash. This in turn would push down the cost of borrowing. 

“The index inclusion would bring in new investments from international investors both active and passive, boosting overall liquidity in the system,” Kulkarni said, adding that similar past experience indicates a lowering of risk premiums and borrowing costs. 

Kulkarni said the latest move underlines India’s importance and highlights one of the largest debt markets in the emerging market landscape to global investors. Index inclusion “will result in further integration and participation of global investors with Indian credit markets via government bonds,” he said.

The US bank will continue to engage the central bank and its own clients to encourage more investments.

“The pool of active investment capital from foreign portfolio investors could also spill over to other domestic bonds over time once they become more familiar,” he said. 

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