We recommend going long INR 30Y bonds on improving macro backdrop, recent RBI FX measures and likely Global Agg Index inclusion

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We recommend going long INR 30Y bonds on improving macro backdrop, recent RBI FX measures and likely Global Agg Index inclusion

Goldman Sachs EM Asia FX/Rates Views

sovereign/credit index, whose investor base typically requires smoother market access,

trading, and settlement than is needed for global EM local-currency indices. That said,

India’s full inclusion in the JPM GBI-EM Global Diversified index in March 2025, where it

has reached the 9% weight cap, suggests market access has improved materially, and

investor feedback also points to gradual progress in onboarding, collateral, and

settlement processes (such as custodians being able to post margin on behalf of

investors). Taken together with the RBI’s announced measures on June 5, we think India’s

eventual inclusion in the Global Aggregate Index is increasingly a question of timing

rather than direction, with a mid-year announcement likely, in our view. If included into

the Global Aggregate Index, we estimate that India’s index weight will be around 0.7%,

based on the current outstanding size of FAR bonds (including the newly added ones),

which could prompt around $15bn of passive inflows over the phase-in period.

Where on the curve? The macro backdrop is also turning more supportive for INR

duration as inflation expectations are easing and lower oil prices should reduce fiscal

risks. We prefer the ultra long-end segment of the yield curve as more ultra-long bonds

enter the FAR universe, and the front-end has already rallied sharply on lower oil prices

over the past few weeks and the pricing out of RBI rate hike expectations. Moreover, as

outlined in our previous work on India’s “savings glut”, there is an ongoing trend of

financialization of household savings, where allocations are shifting away from banks to