Overseas inflows triggered by the inclusion of sovereign bonds in JPMorgan Chase & Co.'s benchmark emerging-market index will help supplement the country's balance of payment surplus.
The overall balance of payment surplus is expected to be around $52 billion in the current financial year, the State Bank of India said in a report on July 16. During the same period, the FII inflows are expected to be around $25 billion, aided by the debt inflows on account of bond inclusion.
However, SBI does not expect any major change in the rupee/dollar exchange rate, the note said. "The majority of the flows are likely to result in FX reserves accretion."
The monthly net inflows into FAR securities have already touched Rs 90,000 crore post the announcement of the inclusion by JPMorgan, said Soumya Kanti Ghosh, group chief economic adviser, SBI.
The index inclusion of Indian bonds is expected to result in monthly inflows of around $2 billion for the next nine months, it said. This will boost demand for government papers, leading to lower yields with a greater and faster impact on short-end tenors, according to Ghosh.
Meanwhile, Bloomberg said it will include the India Fully Accessible Route bonds in its Emerging Market Local Currency Government Index and related indices in a phased manner over a 10-month period from Jan. 31, 2025.
Further, the substantial foreign investment that is likely to come after inclusion will enhance the government bond market depth and support system liquidity, the note said. "Any global event which triggers outflows would make the Indian financial system more prone to bouts of market volatility."
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