FTSE Russell defers India’s inclusion in govt bond Index

Indian market does not yet satisfy criteria around taxation, FPI registration and settlement process, says FTSE Russell

FTSE Russell, a global index provider, has deferred the inclusion of India in its Emerging Markets Government Bond Index (EMGBI), noting that the country would stay on its watchlist as certain criteria for inclusion were still not met.

“India will remain on the FTSE (Fixed Income Country Classification Watch List) for the potential reclassification of its Market Accessibility Level from 0 to 1, and consideration for inclusion in the FTSE EMGBI,” said FTSE Russell in its latest FTSE Fixed Income Country Classification Review published on Wednesday.

This is part of the semiannual review where objective index inclusion criteria for market size and credit rating are assessed to ensure a consistent approach to market inclusion in FTSE global government bond indices.

In March 2021, India was added to the FTSE Watchlist for reclassification of its Market Accessibility Level from 0 to 1, and consideration for inclusion in the FTSE EMGBI. This followed India’s move to introduce the Fully Accessible Route (FAR), paving the way for enhanced FPI flows into the Indian debt market.

India’s inclusion in FTSE EMGBI was last reviewed in September 2023, when the global index provider had decided to defer the inclusion.

FALLING SHORT

Acknowledging that there has been progress in the accessibility of the Indian government bond market, FTSE Russell, which is an LSEG Business, noted that there continue to be criteria for a Market Accessibility Level of 1 that the Indian market does not satisfy.

These include the documentary requirements to fulfil the foreign portfolio investor (FPI) registration, increased regulatory reporting, the inflexible length of the settlement cycle and the tax clearance process.

“FTSE Russell intends to continue its valuable dialogue with the Reserve Bank of India and welcomes feedback from an expanding cohort of international investors entering the Indian government bond market on the practicalities of their investment experience,” it added.

India’s bond market will likely see an additional inflow of as much as $26 billion after the nation’s inclusion in JP Morgan’s GBIEM Global index suite starting June 2024 and Bloomberg Index Services in January 2025. While the inflows from JP Morgan GBIEM inclusion are estimated at $23 billion, they are expected to be $3 billion from Bloomberg Index inclusion.

Already, global funds have added about $10 billion of Indian bonds since JPMorgan Chase’s September 2023 announcement of India’s inclusion in its closely followed emergingmarket debt index.

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that FTSE Russell’s decision is unlikely to have any impact on FPI inflows into Indian debt. The decision is attributed to the stringent criteria of FTSE, he noted.

“The most significant decision came from JP Morgan and the amount involved is big – around $20 billion. Inclusion in the Bloomberg Index is expected to bring in another $5 billion. This is recognition of the maturity of India’s financial system,” Vijayakumar said.