G-secs inclusion in global indices likely to attract FPI worth $18-22 bn: ICRA

FPI inflow in G-Sec: The inclusion of government bonds in global indices will attract a lot of FPI inflows in the bonds. India G-secs will be included in the J.P. Morgan Government Bond Index-Emerging Markets (GBI-EM) Global Index suite from June 2024. According to ICRA, this could result in FPI inflows of at least $18-22 billion into Indian G-secs through the fully accessible route (FAR) during Jun-Mar FY2025. 

Bloomberg to include govt bonds

Moreover, Bloomberg has also launched a consultation to include India FAR bonds in their Emerging Market Indices starting September 2024; if this materialises it could lead to additional inflows. 

“Such large inflows would imply an additional demand for G-secs amounting to Rs 1.4-1.8 trillion during June 2024-March 2025, even as the supply for G-secs in FY2025 is expected to dip slightly compared to the budgeted amount for FY2024,” ICRA in its pre-budget memorandum said. 

According to the report, an additional source of demand amid a lower supply of G-secs would aid in comfortably financing the fiscal deficit and dampening such yields. 

The anticipated softening in Government bond yields across tenures could lead to a downward shift in India’s yield curve, aided by ICRA’s expectations of a shallow rate cut cycle of 50-75 bps starting from Q2 FY2025. 

This could also impart a downward bias to corporate bond yields, thereby auguring favourably for corporate borrowers.