India’s government debt market is on tenterhooks again as traders assess the buzz around prospects for the nation’s sovereign debt to be added to global indexes.

Bonds swung between gains and losses last week with traders latching on to every bit of news — be it a report that the Reserve Bank of India is asking some foreign lenders on how to handle increased inflows or the central bank changing debt investment rules for banks in line with global norms.

Traders are betting that the overseas funds’ need for diversification will trump a lack of tax concessions from the authorities amid renewed speculation that JPMorgan Chase & Co. will likely add India’s sovereign bonds to its emerging market index.

India has taken steps to opening its $1 trillion sovereign debt market further to foreigners, but earlier talks fell through partly due to its reluctance to grant tax breaks on capital gains. There’s a higher chance this time of inclusion given the geopolitical and economic developments in China, Indian government officials aware of the issue told Bloomberg News.

They asked not be identified as the final decision on inclusion rests solely with JPMorgan. India continues to hold its position of not giving any concessions, said the officials. An email to the Finance Ministry was unanswered.

“For the last two years we have been seeing the same story and it fizzles out afterwards,” said Murthy Nagarajan, head of fixed income at Tata Asset Management. “There is a feeling that this will happen. We have to see how this will pan out.”

The excitement is even spilling over to India’s stock market, where a gauge of state-backed lenders is nearing a record.

Meantime, the debt market is seeing a replay of last year’s script when bonds rallied on rumors of index inclusion only to tumble later.

The yield on 10-year debt fell last Thursday by the most in four months after a local newspaper reported that the RBI asked some foreign banks about the operational aspects of handling increased flows from abroad. A likely inclusion could lead to inflows of as much as $30 billion, according to HSBC Holdings Plc.

Talks of JPMorgan Chase Chairman Jamie Dimon’s visit to India later this month also bolstered speculation ahead of the firm’s scheduled review of its bond indexes in the coming weeks.

“There are rumors that Jaime Dimon will come down and announce it around the end of this month,” said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank. “Those are the kind of stories floating around. Volatility may continue until the end of this month.”

A JPMorgan India spokesperson declined to comment on the speculation.

A tweak in rule by JPMorgan Chase to include the impact of withholding tax — a levy that India imposes on foreigners’ interest income — for one of its emerging market indexes, added to the bullish fervor.

“This year it is looking even more compelling given that there may be some push from the index provider to include because it’s a big market,” said Naveen Singh, head of trading at ICICI Securities Primary Dealership Ltd.

Bloomberg LP is the parent company of Bloomberg Index Services Ltd, which administers indexes that compete with those from other service providers.

--With assistance from Malavika Kaur Makol.

Author: Subhadip Sircar, Ronojoy Mazumdar and Siddhartha Singh