Ashmore plans to buy more Indian bonds as JPMorgan inclusion nears

Ashmore Group Plc plans to boost its holdings of Indian government bonds as they get included into the JPMorgan Chase & Co.’s key emerging-market index by the end of June.

Higher yields and slowing inflation in the country boost the allure of the bonds, according to Gustavo Medeiros, head of research for Ashmore, which manages assets of about $51.9 billion. He likes bonds with 10-year maturity.

“We are actually bullish on Indian bonds because of fundamental reasons, but the index inclusion adds this technical positive element that obviously makes the trade even more interesting at the margin,” Medeiros said in an interview.

Ashmore joins a slew of global investors, including BlackRock Inc. and Zurich-based Vontobel Asset Management, in turning to Indian bonds ahead of their June 28 inclusion to JPMorgan’s gauge. The move is expected to attract up to $40 billion of foreign inflows, according to estimates.

“Most likely, we’re going to keep the same degree of overweight as inclusion takes place, which means that we’re going to be buying more of Indian government bonds,” Medeiros said.

Indian sovereign bonds have seen about $9.5 billion of inflows into the so-called Fully Accessible Route — or FAR securities — since the JPMorgan announcement in September. The FAR bonds have no restrictions for foreign investors.

Accelerated inflows have catapulted Indian bonds into the top rankings in Asia this year, with the yield on the benchmark note falling by 20 basis points.

“India has higher potential GDP growth, led by all the structural reforms and the infrastructure investment, that makes for a very interesting case for the currency from a multi-year perspective,” Medeiros said.

Bloomberg Index Services Ltd. will also start including India in its emerging-markets index from January. Bloomberg LP is the parent company of Bloomberg Index Services, which administers indexes that compete with those from other providers.