JP MORGAN GBI-EM INDEX (Syllabus GS Paper 3 – Economy)

News-CRUX-10     28th June 2024        

Context: JP Morgan will start including Indian Government Bonds (IGBs) in its emerging markets bond indices, marking a significant milestone for India's financial markets.


JP Morgan GBI-EM 

  • About: It is a widely followed and influential benchmark index that tracks the performance of local-currency-denominated Sovereign Bonds issued by emerging market countries.
  • Launched: June 2005
  • Expansion of the Index: It began with the issuance of the first Brady bond and has since expanded to include the Government Bond Index-Emerging Markets (GBI-EM) and the Corporate Emerging Markets Bond Index (CEMBI).
  • Objective: It is designed to provide investors with a representative measure of the fixed income market within emerging market economies.
  • Aim: To provide investors with a representative measure of the fixed income market within emerging market economies.
  • Components: It includes government bonds issued by various emerging market countries.
  • Composition: The composition may change over time based on eligibility criteria.

India's Inclusion

  • India's 10 percent weight in the index is expected to attract $21 billion (Rs 1.7 trillion) in investments by March 31, 2025, assuming investors initially had zero weight in Indian bonds.
  • Eligible Indian Government Bonds: Only Indian Government Bonds (IGBs) under the Reserve Bank of India's 'Fully Accessible Route (FAR)' qualify.
  • Minimum Size Requirement: Bonds must have a minimum outstanding amount above $1 billion.
  • Bonds must have at least 2.5 years of residual maturity, making those maturing after December 31, 2026, eligible.
  • Impact of India’s Inclusion on Financial Flows
  • Expected Inflows: India's inclusion in the JP Morgan Emerging Market Global Diversified Index is expected to bring in $23.6 billion into Fully Accessible Route (FAR) bonds.
  • Increase in FPI Holdings: Foreign Portfolio Investor (FPI) holdings in outstanding FAR bonds could rise to 3.4% by April/May 2025.