Bonds and rupee may feel the heat of possible index weight recalibration by JPMorgan

Core Viewpoint - JP Morgan Chase & Co is considering reducing the weight of major bond issuers, including India and China, in its Global Bond Index – Emerging Markets (GBI-EM), which may lead to selling pressure in Indian government securities and affect the Indian rupee [1][2][4]. Group 1: Impact on Indian Bonds and Currency - A potential cut in India's weight in the GBI-EM from 10% to 9% could result in increased selling pressure on Indian government securities (G-Secs), leading to higher yields [2][3]. - The anticipated reduction in weight may also negatively impact the Indian rupee, potentially causing further depreciation [2][3]. Group 2: Market Reactions and Future Projections - Market participants express concern that the initial optimism surrounding the inclusion of Indian G-Secs in the JPMorgan Index may turn negative if the weight is reduced, predicting a jump in bond yields and a ripple effect on the rupee [3]. - According to a report by Edelweiss Mutual Fund, maintaining a 10% weight for G-Secs could attract approximately $21 billion (around ₹1.7 lakh crore) in investments by March 31, 2025, assuming investors currently have zero weight [5].