India’s stocks have been included in major emerging markets indexes for some time, but its sovereign bonds have never received the same treatment. After all, the country doesn't issue government bonds denominated in foreign currencies, and its local rupee ones were historically closed off to international investors. But that changed in 2020. With the pandemic ravaging the economy and the government borrowing at record levels to fund an enormous stimulus package, authorities opened a wide swath of the country’s sovereign bond market to overseas investors. That newfound access – coupled with the global appetite to invest in the world’s fastest-growing major economy – was a game-changer. This Friday, India’s government debt will be officially added to JPMorgan’s biggest emerging markets bond index, its first-ever admittance in a global bond index. Inclusion will be staggered over ten months at roughly 1% weight per month, up to a maximum weight of 10%. The milestone is a win-win for investors and India. Buyers of the JPMorgan emerging markets bond index will gain access to India’s $1.3 trillion government debt pool, which has been offering some of the highest returns among its peers lately. They’ll also be getting an index that’s more attractive and diversified – making up for the diminishing appeal of China’s debt and the ouster of Russia’s bonds after the invasion of Ukraine. For India, the move heralds greater connectivity between domestic and foreign financial markets and will help it reach more investors, raise more funds, and lower borrowing costs. Goldman Sachs predicts that the inclusion could boost global investment in Indian debt by a chunky $40 billion, sending yields lower and giving a much-needed boost to the rupee. On the flip side, however, those increased foreign flows could also make the country’s bond and currency markets more volatile, presenting new challenges for the government and its central bank. | 