After JP Morgan, Bloomberg to include Indian bonds in EM Government Index

Inclusion of Indian bonds in key indices could attract big overseas investments

Bloomberg on Tuesday said it will include India Fully Accessible Route (FAR) bonds in the Bloomberg Emerging Market (EM) Local Currency Government Index and related indices, to be phased in over a 10month period, starting January 31, 2025. This comes about five months after JP Morgan had announced it would include India in its widely tracked emerging market debt.

The inclusion of Indian bonds in these two key indices could attract billions of dollars of foreign investment in the Indian government securities (GSec) market. This could potentially lead to a decline in Indian bond yields and strengthen the rupee.

FAR is a separate channel introduced by the RBI, in consultation with the Government, for nonresident investment in GSecs with

A STRONG BOND

The inclusion will be phased over 10 months, with FAR bonds reaching full market value weight in the indices by October 2025

This move is expected to lower bond yields and strengthen the rupee

Reflecting India’s growing global economic importance, this development marks a milestone in the country’s financial market evolution effect from April 1, 2020.

Bloomberg, which is a global business and financial information service provider, said in a statement that the weight of FAR bonds will be increased in increments of 10 per cent of their full market value every month over the tenmonth period ending in October 2025, at which point they will be weighted at their full market value in the indices.

The indices in the scope for inclusion include the Bloomberg EM Local Currency Government Index, the Bloomberg EM Local Currency Government Index 10 per cent Country Capped Index, and all related subindices, the statement added.

“Once completely phased into the Bloomberg Emerging Market 10 per cent Country Capped Index, India is expected to join both China and South Korea as markets that reach the 10 per cent cap.

“Within the market cap weighted version of the index, India is expected to be the third largest country after China and South Korea,” Bloomberg said.

‘CONNECTING INVESTORS’

Using data as of January 31, 2024, the index would include 34 Indian securities and represent 7.26 per cent of a $6.18trillion index on a market value weighted basis, it added.

“This is an important marker in the development of India’s financial markets and a reflection of India’s growing importance to the global economy.

“India’s continued emergence as a global financial centre promises to be one of the most significant economic developments of this decade, and Bloomberg is committed to bolstering it by connecting more investors to India,” said Michael R Bloomberg, founder of Bloomberg LP.

The Indian economy is on a steady growth trajectory and the inclusion of Indian FAR Bonds in Bloomberg’s Emerging Market Local Currency Government Index marks a key milestone amidst the measures India has taken to open its bond markets, according to the statement.

“Bloomberg Indices is committed to serving the global investment community and this development will increase access to, and participation in Indian markets,” said Nick Gendron, Global Head of Fixed Income Index Product, Bloomberg Index Services Limited (BISL).

The decision to include India FAR Bonds in the Bloomberg EM Local Currency Government Index was taken following consultation with market participants and stakeholders.

Bloomberg Indices will create an exIndia version of the EM Local Currency Government Index and other standard and custom versions of the index.