Bloomberg Proposes India Gilts In Emerging Market Local Currency Index

Bloomberg Index Services has proposed to include Indian bonds in its Emerging Market Local Currency Indices starting in September 2024.

The inclusion of India Fully Accessible Route bonds in the Bloomberg EM Local Currency Indices is to be phased in over five months, starting in September 2024, Bloomberg said in a consultation note.

Bloomberg proposes a 10% weight for India bonds on its Emerging Market Bond Index. The index would include 32 Indian securities, representing 6.99% of a $5.96 trillion index, it said.

The Indian bonds will be included in the indices with an initial weight of 20% of their full market value and will be increased in increments of 20% of their full market value every month over the five months ending in January 2025.

Indian government bonds' inclusion in such global indices is a big positive for the bond market, according to Mataprasad Pandey, vice president of Arete Capital Service Pvt. "This will help reduce government's borrowing and this is of great importance at this hour during the election year where we may see the higher borrowings and such incremental supply can be well-absorbed by such increased demand."

After the inclusion, the Indian rupee will become the third largest currency component, following the Chinese renminbi and the South Korean won within the Bloomberg Emerging Market Local Currency Index.

Bloomberg has sought feedback on the proposed inclusion of India bonds by Jan. 25.

According to Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP, markets will react positively in the short-term and the anticipation of inclusion might lead to price movements in the bond market.

"The proposed inclusion may boost confidence in India’s economic stability amongst international investors. However, it all depends upon the scale of inflows and broader market conditions at the time of inclusion," he said.

However, after the JPMorgan EM Bond Index inclusion, the market had already factored in a good chance of its inclusion with other EM/Global Bond Index, Pandey said.

The proposed move will lead to an increase in foreign investment and strengthen the rupee, Srinivasan said. International investors tracking the Bloomberg index may allocate funds to Indian gilts, which will potentially increase demand for these securities, he said.

This will also drive down the borrowing cost, which will positively impact the government's fiscal management, Srinivasan said.

The Bloomberg bond inclusion comes after JPMorgan Chase and Co. said it would add Indian government bonds to its benchmark emerging market index.

The inclusion of Indian bonds in the JPMorgan index begins in June 2024, with a weight of 1%—increasing 1% each month until it reaches 10% by April 2025. It is expected to lead to $30 billion in inflows into its government bond market, with monthly inflows of $3 billion during the inclusion period.