Investor interest in Indian bonds has surged as they prepare to join the global debt index. This surge, though, may abate. According to a Bloomberg survey, among developing economies, Indian bonds have done extraordinarily well, second only to Argentina. This positive market mood has been fueled by a number of factors, including prudent government borrowing, high benchmark interest rates, and estimates of up to $40 billion in inflows from index inclusion.
On June 28, when India was included in JPMorgan Chase & Co.'s index, the focus may return to basic concerns, instead of being overhyped. This is comparable to what has happened in China. Following the inclusion, investors' attention will probably shift back to macroeconomic data, government fiscal measures, and the general attitude toward developing markets.
Senior portfolio manager at GAMA Asset Management SA Rajeev De Mello said that aggressive trading usually takes place prior to the bonds being included in global indexes. "Thereafter, there is typically a pause in the market's momentum and a selloff," he continued.
The initial euphoria that greeted Chinese bonds' inclusion in global indexes in 2019 was fleeting. Yields eventually rose, and the actual inflows for 2021 were only around 10% of the analysts' projections. Currently, international investors are favoring India's sovereign debt over China's as they seek to profit from India's stronger economic development.
Furthermore, worries about the durability of recent advances in Chinese government bonds and geopolitical issues are tilting the balance even further in favor of India's allocations. Yields have decreased as a result of foreign investors purchasing roughly $9 billion worth of India's index-eligible bonds since JPMorgan's announcement in September.
