How does inclusion into the Global Bond Index work JP Morgan has recently announced that it will be adding Indian government bonds to its emerging markets bond index starting from June 2024. The inclusion is expected to reach the maximum weight of 10% in the Government Bond Index (GBI) - Emerging Market (EM) Global Diversified Index (GBI-EM GD) and about 8.7% in the GBI-EM Global index. Currently, 23 Indian government bonds are eligible for indexing, with a combined notional value of $330 billion or Rs. 27 trillion. According to JP Morgan, these bonds will be included over ten months through March 31, 2025, with a gradual inclusion of 1% weight per month. Analysts estimate that this decision can potentially attract approximately $25 billion into the country. Even ETFs tracking these global indices will need to rebalance their portfolio and invest in these bonds, resulting in more inflows. According to the Index-inclusion criteria, eligible instruments must have a total face value of outstanding securities of over $1 billion (or equivalent) and at least 2.5 years left until maturity. Only IGBs that are designated under FAR are eligible for the index. Fully Accessible Route (FAR) is a separate channel that RBI introduced to allow non-residents to invest in specific government bonds. By adding the higher-yielding Indian bonds, the overall yield of the index will be expected to increase a bit once the inclusion process is over... What is the current scenario? Foreign portfolio investors (FPI) have invested Rs 29,119 crore in India's debt market between January and September 2023. This marks a significant change from the same period in 2022, when there was an outflow of nearly Rs 9,069 crore. FPIs have started buying Indian bonds with optimism that India will be included in global bond indices, improving growth prospects, lower inflation compared to other economies and a stable rupee. In 2023, overseas investors have been net buyers of domestic debt for all nine months except March, when they sold Rs 2,505 crore of bonds. In contrast, in the calendar year 2022, FPIs had net sold Rs 15,911 crore of Indian debt.