Inclusion of GSecs in JP Morgan bond index to diversify investor base: Fitch

The JP Morgan GBI-EM indexes will limit their investments to local-currency government bonds issued under a fully accessible route FAR, comprising 23 bonds with a total value of about USD 330 billion.Fitch said increased exposure to foreign investor sentiment around government securities could encourage the authorities to pursue policies consistent with macroeconomic stability and fiscal prudence, benefitting the sovereigns credit profile over the longer term.

Fitch Ratings on Wednesday said the inclusion of certain Indian sovereign bonds in key emerging-market bond indices managed by JP Morgan will support a diversification of the investor base for Indian government securities. ''Inclusion in the indexes could facilitate about USD 24 billion in passive inflows between June 2024 and March 2025. Flows could be greater if other indexes also move to include Indian government securities,'' Fitch said. This inclusion could also help to lower funding costs slightly and support further development of domestic capital markets, but direct positive effects on India's credit profile will be marginal in the near term, it added.

''India's high government debt and interest/revenue ratios are weaknesses in its credit profile, and developments that help to lower funding costs can have a significant influence on the sovereign's creditworthiness.

''However, we expect the positive effect on the sovereign rating of India's inclusion in the JP Morgan Global Bond Index-Emerging Markets (GBI-EM) to be small, especially in the near term, as its impact on fiscal credit metrics is unlikely to be significant,'' the global rating agency said in a statement. The JP Morgan GBI-EM indexes will limit their investments to local-currency government bonds issued under a fully accessible route (FAR), comprising 23 bonds with a total value of about USD 330 billion.

Fitch said increased exposure to foreign investor sentiment around government securities could encourage the authorities to pursue policies consistent with macroeconomic stability and fiscal prudence, benefitting the sovereign's credit profile over the longer term. However, there are examples of governments whose bonds are included in benchmark indices that have pursued economic policies that had clear adverse effects on foreign investor confidence. ''We do not believe that inclusion in the JP Morgan GBI-EM indexes will significantly affect India's fiscal policy approach,'' Fitch added.

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