In a significant development for India’s financial market, Bloomberg Index Services Limited (BISL) has initiated discussions about incorporating Indian government bonds into its Bloomberg Emerging Market Local Currency Index. This proposal, announced on January 8, 2024, follows a similar move by JPMorgan in 2023 to include these bonds in its indices.
Bloomberg’s consultation process, influenced by feedback from the 2023 Fixed Income Index Advisory Councils, explores the possibility of adding India’s Fully Accessible Route (FAR) bonds to its index. FAR bonds are notable for being open to foreign investors without any caps or limitations. According to the proposal, the inclusion process is set to begin in September 2024 and will be executed in phases over five months. Each month will see an addition of 20% of the full-market value of these bonds, culminating in January 2025.
Upon full integration, India’s FAR bonds will represent a 10% cap in the Bloomberg Emerging Market 10 percent Country Capped Index. This will elevate the Indian Rupee to the third-largest currency component in the index, trailing only behind the Chinese Renminbi and the South Korean Won.
It’s important to note, however, that Bloomberg’s current proposal does not extend to incorporating Indian bonds into its Bloomberg Global Aggregate and related indices. The index provider has stated it will continue to monitor market developments in this regard.
Bloomberg has launched a consultation process, seeking feedback from index users on two primary questions: the agreement on the proposed inclusion of eligible Indian bonds and the phased approach planned to start in September 2024. Stakeholders are requested to submit their responses by January 25.
While the potential implementation is targeted for September 2024, Bloomberg emphasizes that the consultation outcomes could lead to adjustments or no changes at all.
The anticipated inclusion of Indian government bonds in global indices like those of Bloomberg and JPMorgan is expected to significantly attract foreign investment into India’s sovereign debt market. Economists predict that JPMorgan’s inclusion alone could result in an influx of approximately $24 billion.
The Indian government, while recognizing the benefits of such inclusion, remains cautious about its impact on domestic markets and the Indian rupee’s competitiveness, especially in the wake of increased foreign investment flows.