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India remains on watchlist for index, liquidity improves: JPMorgan

Five days after FTSE said India is a potential candidate for inclusion in its bond index, JPMorgan Tuesday said debt sold here remains on the watchlist for entry into its globally tracked Emerging Markets bonds gauge, likely ensuring future overseas fund inflows of up to $30 billion into domestic fixed-income securities.

“India (INR) government bonds will remain on Index Watch for GBI-EM inclusion,” JP Morgan said in its Index Research report, issued on Tuesday.

“India has one of the largest and most liquid onshore bond markets among Emerging Market economies, and over the past two years, the market has made significant strides in easing the access for foreign portfolio investors,” the Wall Street Financial powerhouse said in a separate statement.

Indian government bonds designated as ‘Fully Accessible Route’ (FAR) were placed on positive Index Watch in October 2021 and will continue to remain on watch at this time based on investor feedback.

There are nearly two dozen dedicated government bonds in the bespoke category where non-residents can invest without any ceiling curbs. Total outstanding government bonds under this category is now at Rs 23.51 lakh crore, show data from the Clearing Corproation of India.

“As part of the Index Watch, we will continue to engage with the regulators and market participants, and gather feedback on sufficient resolutions for the remaining hurdles,” JPMorgan said.

Feedback from investors cited investment hurdles that need to be resolved, including a lengthy investor registration process and the operational readiness required for trading, settlement and custody of assets onshore.

“General consensus from investors is that while the process has improved, new account set-up takes approximately 3 to 6 months, on average,” it said.

Investor feedback from JPMorgan, however, acknowledged recent improvements by the authorities to alleviate margin requirements for trading and a more streamlined account opening process through the common application form (CAF).

Last week, Global index provider FTSE Russell reportedly said that India would remain on the watchlist for inclusion in the FTSE Emerging Markets Government Bond Index (EMGBI). India will also remain on the watch list for a potential upgrade to Market Accessibility Level 1, the index provider said on Thursday, which indicates improved ease of foreign access to local markets.

Investors have raised concerns of delay in the settlement process.

“The repatriation of proceeds from bond sales can be delayed beyond the settlement period (i.e., T+3, T+5) typically related to the workout of tax liabilities by the various parties involved,” JPMorgan said in the statement.

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