Bloomberg Index Services has proposed to include India's government bonds in its Emerging Markets local currency index. This comes close to the heels of another benchmark global fixed income provider, JP Morgan's move to include India's bonds in its Global Bond Index - EM, this June onwards (India’s bonds go global with index inclusion). Inclusion into the specified Bloomberg indices will be carried out in a phased manner over five months, starting September 2024, once consultations are completed in late-Jan. The FAR securities (i.e., bonds available under the freely accessible route, without ceilings for foreign portfolio investments) will have an initial weight of 20% of their full market value, will be raised in increments of 20% until they reach 100% by January 2025. Once the inclusion into the Bloomberg EM 10% country capped Index is complete, India’s FAR bonds will be fully capped at 10% weight within the index. This will make the INR (Indian rupee) the third largest currency component, following the CNY and KRW within the EM Local Currency Index, according to the press release. Additionally, this implies that as of November 2023’s tally, the index would include 32 Indian securities (up to 35 securities by late-2023) and represent 6.99% of a $5.96trn index. The count for China (CNY) stands at 154 and South Korea (KRW) at 66. Notably, securities will be excluded from the Bloomberg Global Aggregate and related indices, while the provider continues to monitor market developments.
Foreign portfolio investments into India's debt rose to a six-year high in 2023 at $7.1bn, led by the GSec FAR window, as investors frontloaded purchases ahead of the inclusion into the global indices. These inclusions stand to improve the demand-supply dynamics for the sovereign bonds by tapping a significant under-realised investor group, besides helping to balance fiscal discipline with the need to boost infrastructure capabilities and supporting the overall balance of payments math. Anticipation of further portfolio flows is likely to convince the authorities to continue absorbing flows passively to bolster defences and keep the rupee on a predictable as well as stable path.
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