Indian government bonds (G-Secs) have officially joined JP Morgan’s Government Bond Index-Emerging Market (GBI-EM) on Friday a move that could potentially lead to $22 billion inflows into the country.

The inclusion will happen over a 10-month period beginning June 28 till March 31, 2025. While India will initially have a 1 per cent weight in the index, it will eventually rise to 10 per cent.

JP Morgan has said only bonds issued under the Reserve Bank of India’s (RBI) fully accessible route (FAR) will be in the index — meaning 27 such bonds will qualify for inclusion.

The highest weight of 0.59 per cent will be on the 7.18 per cent government bond maturing in 2033. Released by the RBI in 2020, the FAR list covers bonds with no limits on foreign holdings.

Inflows into FAR bonds have reached $11 billion since JP Morgan announced their entry in September 2023, nearly six times the inflows received from early 2021 to August 2023.

While yields on the benchmark 10-year security ended almost unchanged at 7.00 per cent, a Reuters report said foreign investors purchased $480 million of bonds coinciding with the inclusion.

According to a note from Mirae Asset Mutual Fund, foreign portfolio investors (FPIs) hold around 2.4 per cent of the outstanding Indian government bonds.

The fund house said the 6-10 year segment in the government bonds saw the maximum increase in exposure since September.

JP Morgan analysts had pointed out India is the 25th market to enter the GBI-EM index since its launch in June 2005. India government bonds will also have the single highest duration across the index on an average at 7.03 years, with an above average yield-to-maturity at 7.09 per cent.

The India local debt stock is amongst the largest in emerging markets with the total outstanding of bonds included in the index standing over $400 billion, the Morgan analysts said.

“Structurally, we see ample scope for non-resident participation in the local bond market to increase, given that it currently sits at one of the lowest levels in EM; we forecast non-resident holdings to nearly double over the next year, from the current 2.5 per cent of outstanding to over 4.4 per cent,’’ Morgan said.

According to Vishal Goenka, co-founder of IndiaBonds.com, the inclusion is a "watershed moment for the fixed-income markets in India".

“Global investors have been looking to allocate capital to emerging markets given their reluctance to invest in other large countries like Russia or China. Hence, the timing of this index inclusion is also almost perfect’’, Goenka said.

Stocks backtrack

Market benchmarks Sensex and Nifty halted their three-day record-hitting rally to close with losses on Friday as investors booked profits .

After hitting fresh all-time high level in early trade, the 30-share index declined 210.45 points or 0.27 per cent to settle at 79032.73. During the day, it jumped 428.4 points or 0.54 per cent to hit a fresh record peak of 79671.58.

The Nifty went lower by 33.90 points to 24010.60. During the day, it climbed 129.5 points to hit a new high of 24174.