JP Morgan emerging market index will see a 1 weightage starting June 2024 and increasing by 1 every month to cap at 10 ceiling by April 2025.
The announcement made by JP Morgan to include India in its emerging market global diversified index in September 2023 had spurred foreign institutional investors, domestic institutions and high net worth investors to pump in billions of dollars in the Indian debt market segment .
The JP Morgan emerging market index will see a 1% weightage starting June 2024 and increasing by 1% every month to cap at 10% ceiling by April 2025. The foreign investor’s fund infusion had triggered Indian bond yields to touch a low of around 7.1%. As per shared government data, foreign investors had injected close to 1.2 trillion into the debt market during 2023 by buying mainly long-duration debt securities. This could be termed as a trading strategy by the foreign portfolio investors and hedge funds to earn huge capital gains as and when the Indian Central Bank started to cut interest rates in the immediate future.
The Indian corporate bond market had seen an exponential mobilisation of over Rs 10 lakh crores through the private placement route during the financial year 2024, wherein the maximum amount of funds raised was in the 10-year maturity bucket. But all this has suddenly changed over the last 2-3 weeks with bond yields hardening by 15 basis points and foreign portfolio investors pressing the sell button. Rising oil prices , stronger US dollar , conflict in the Middle East and rising inflation in the US has prompted foreign institutional investors to pull out of Indian debt securities after a year of strong inflows. Sudden repricing by the US Federal Reserve to push back their interest rates on the back of higher than expected inflation data indicating rates to remain higher for some more time has led to selling in Indian bonds by foreign portfolio investors.
There is expectation at present that the US Fed will not cut rates in July this year but postpone it to end of the current calendar year , that is after the US general elections in November 2024 . But with Bloomberg Index Services also set to include India in its emerging market local currency government index from January 31, 2025 , the expectation from fixed income analysts is that investors should start investing in fixed income funds and high rated debt securities in a staggered manner over the next six months to reap decent capital appreciation over the next one year time frame . Portfolio investors can book some profits from their equity portfolio and start purchasing government securities mutual funds through the systematic investment plan route by subscribing every month for decent medium term capital gains . Investors should check with their financial advisors for the risk and return associated with any investment plan along with tax implications on such purchases .