MUMBAI
:
Financial news and data provider Bloomberg on Tuesday said it will add a set of Indian government bonds to its widely-tracked emerging market index, a development that could potentially attract investment flows of $3-4 billion beginning next year.
Global investors with passive investment strategies buy stocks and bonds featuring in global indices, and Bloomberg’s addition of Indian bonds promises to attract investments in them.
Indian bonds available under the fully accessible route (FAR) will be included in Bloomberg’s Emerging Market (EM) Local Currency Government Index and related indices, beginning 31 January, 2025. Bloomberg’s index rebalancing comes about six months after JP Morgan decided to include India’s FAR securities in its GBI-EM Global index suite from 28 June 2024, a move expected to attract $22-25 billion over time.
“Indian regulators have thoughtfully implemented a number of enhancements and innovations in recent years – like the FAR programme, extended trading hours and more flexibility with margin requirements – that have bolstered bond market access and depth,” said Nick Gendron, global head of fixed income index product, Bloomberg Index Services Ltd.
“These changes, and the ongoing growth of India as a global investment destination, led us to conclude that index inclusion was an appropriate step to take today,” said Gendron.
Introduced in 2020, FAR is a separate channel allowing non-residents to invest in specified Indian government securities without investment ceilings. As of 31 January, 34 Indian FAR bonds of $448 billion are eligible for the Bloomberg indices mentioned above.
Still, India remains excluded from the Bloomberg Global Aggregate and related indices, and Bloomberg said it will continue to monitor related market developments.
According to Devang Shah, co-head of fixed income at Axis Mutual Fund, the emerging market index tracks assets of about $30-40 billion, and India could see about $3-4 billion of inflows over 10 months.
“While this is a positive development, the true game changer would be the inclusion in the Bloomberg Global Aggregate index which has an AUM of around $2 trillion and a 10% weight for India could mean $20 billion inflows. I believe inclusion in the Bloomberg Global Aggregate could be the next step,” Shah said.
In January, Bloomberg Index Services began seeking feedback on a proposal to include India’s FAR bonds in its indices, leading up to Tuesday’s decision based on the feedback obtained. Once completely phased into the Bloomberg Emerging Market 10% Country Capped Index, India is expected to join China and South Korea as markets that reach the 10% cap.
The inclusion points to the growing global interest in the Indian economy.
Similar to JP Morgan’s decision last year, Bloomberg will also include India FAR bonds over a 10-month period beginning 31 January 2025.
“The weight of India FAR bonds will be increased in increments of 10% of their full market value every month over the 10-month period ending in October 2025, at which point they will be weighted at their full market value (100%) in the indices,” it said in a statement.
Experts said this inclusion would lead to significantly lower inflows compared to the JP Morgan inclusion last year. “The move is positive for the markets as it will lead to additional inflows. Although the amount expected to come is not large, it is still significant from a sentiment point of view,” said Madan Sabnavis, chief economist, Bank of Baroda.