Nifty PSU Bank Jumps 3% After India’s Inclusion To JP Morgan’s Emerging Markets Bond Index

Nifty PSU Bank index made a strong rebound after JPMorgan Chase & Co. announced that it would add Indian government bonds to its benchmark emerging-market index
JP Morgan emerging-market index (GBI-EM)
JP Morgan emerging-market index (GBI-EM)

Shares of public sector banks (PSBs) made a strong rebound on Friday’s trading session after witnessing a steep decline on 21 September. This comes after JP Morgan’s decision to include Indian government bonds in its emerging-market index.

At 1:30 PM, the Nifty PSU Bank index was trading 2.92 per cent higher at 5,185.3 points. Shares of the Central Bank of India surged 5 per cent, Union Bank of India rose 4.8 per cent, Canara Bank gained 4.6 per cent, Indian Bank rose 4.5 per cent and Bank of Baroda jumped 3.8 per cent on 22 September.

All 12 components of the Nifty PSU Bank Index were trading with gains. The Nifty PSU Bank index opened at 5,094.70 and touched an intraday high of 5,246.70 and a low of 5,038.25. Shares of Union Bank of India and Canara Bank hit a 52-week high.

On 22 September, JPMorgan Chase & Co. announced that it would add Indian government bonds to its benchmark emerging-market index (GBI-EM) starting 28 June 2024.

According to analysts, India’s inclusion in the JP Morgan Emerging Markets Bond Index is positive news because it would boost global investors’ participation in the Indian economy and offer them higher returns in the emerging region. The move is expected to drive significant foreign inflows into the Indian debt market, with India receiving a 10 per cent allocation in the $240 billion index.

JP Morgan said the Government Bond Index-emerging markets (GBI-EM) index and the index suite, which are benchmarked by around $236 billion in international funds, will incorporate India’s local bonds.

The index provider will add the securities starting from 28 June 2024. India’s weight on the index will not exceed 10 per cent, as per the statement.

“Starting from June 2024, over a 10-month period, India could receive close to $24 billion in foreign inflows. Moreover, foreign portfolio investors (FPIs) have already started entering the Indian fixed income market in anticipation of this inclusion,” said Vikram Kasat, Head Advisory at Prabhudas Lilladher Pvt Ltd.

The inclusion of Indian government bonds in the index is considered a big positive, as it will not only absorb more than 15 per cent of Government Securities (GSEC) for financial year 2025 but also lead to a reduction in capital cost of borrowing for India, said Kasat

He further added that the move is expected to improve the external fundamental situation for India, with an increase in forex reserves, said Kasat. Overall, this development has bolstered the outlook for PSBs, resulting in the rebound of their stocks today.

The Nifty PSU Bank has surged over 14 per cent in the last one month, outperforming the benchmark Nifty 50 index rose just 1.60 per cent.

Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, said the PSU banks have corrected in the last few days as buying interest is emerging in the sector due to the visibility of earnings and credit growth in the economy.

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