Rupee gains against dollar as JPMorgan says Indian bonds will enter its index

The Indian rupee on Friday, September 22, made substantial gains in morning trade, appreciating by 38 paise to reach 82.75 against the US dollar. This  upswing can be primarily attributed to JPMorgan bond index's decision to include Indian bonds, a move that has sent ripples through the financial landscape and ignited a renewed sense of investor confidence, experts were quoted as saying in Press Trust of India (PTI) report.

On the interbank foreign exchange, the Indian rupee commenced the day on a strong note at 82.75, marking a notable gain of 38 paise from its previous close. The preceding day had seen the rupee trading within a narrow range, ultimately settling just 2 paise lower at 83.13 against the US dollar.

The decision by JPMorgan Chase & Co to incorporate Indian government bonds into its benchmark emerging-market index is being hailed as a game-changer. Forex traders and experts alike are anticipating far-reaching implications for India's debt market and global investors.

One of the most significant outcomes of India's inclusion in a major global bond index is the floodgate it opens for increased foreign investment in the nation's debt market. Experts believe this move will not only have a positive impact on the currency but also usher in potential growth in the onshore market.

Amit Pabari, Managing Director of CR Forex Advisors was quoted as saying in a PTI report, "The inclusion of India in the JPMorgan bond index has had a favorable effect on the rupee, with the currency showing strength by appreciating around 0.42 percent in the NDF markets and reaching levels around 82.80."

He further suggested that this positive momentum could push the rupee towards 82.50 in the near future. However, Pabari cautioned that the upside for the rupee might be limited between the 83.25-83.30 zone due to robust intervention by the Reserve Bank of India (RBI).

Mukesh Kochar, National Head of Wealth at AUM Capital, expressed optimism about this development, emphasising that it's a significant positive for India as it is likely to attract substantial dollar flows, benefiting various sectors including banks, NBFCs, and leveraged companies.

B Prasanna from ICICI Bank highlighted the potential passive inflows into the Indian bond markets, estimating figures between $20-30 billion due to India's inclusion in the JPMorgan index. Prasanna also underscored the long-term perspective of this move. Lakshmi Iyer of Kotak Alt Asset Managers echoed the sentiment, emphasising the importance of this announcement in supporting the bond market.

JPMorgan has outlined the details of India's inclusion in its Government Bond Index-Emerging Markets index. This process will begin on June 28, 2024, and extend over 10 months with 1 percent increments in its index weighting, ultimately reaching a maximum weighting of 10 percent for India.

Furthermore, India's inclusion in the JPMorgan index has raised hopes for potential inclusion in the Bloomberg Global Aggregate Bonds Index, which could translate into additional inflows of $15 billion to $20 billion, as estimated by IDFC First Bank.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.12 percent to 105.48. Brent crude futures, the global oil benchmark, was trading 0.61 percent higher at USD 93.87 per barrel. In the domestic equity market, the 30-share BSE Sensex was trading 22.14 points or 0.03 percent higher at 66,252.38 points. The broader NSE Nifty declined 3.65 points or 0.02 percent to 19,738.70.

Foreign Institutional Investors (FIIs) were net sellers in the capital market on Thursday as they offloaded shares worth Rs 3,007.36 crore, according to exchange data.