Morgan Stanley sees a “good chance” for JPMorgan to include Indian government bonds in its index and recommended going long on the benchmark 10-year bond yield. We now believe there is a very good chance that JPM will announce the inclusion of the Indian bond market in the index in mid-September,” strategists Min Dai and Madan Reddy said in a note. We recommend to position tactically for strong INR and lower G-Sec returns. We would like to add a short EUR/INR limit order and a long 10-year G-second targeting 25bp lower.”
A foreign brokerage said the actual inflow could take nine to 12 months and would not be seen until June or September 2023. India’s 10-year benchmark bond yielded 7.23%, while the Indian rupee was at 79.80 to the dollar. Morgan Stanley further said that bond investors could get into position ahead of the actual inclusion, which could drive a rally for one or two months ahead, given the expected inflow of $3 billion each month. These inflows would support both the rupee and bonds, he added. Over the medium term, Morgan Stanley expects the bond market to attract $18.5 billion a year to push foreign ownership to 9% by the end of 2032.