“FTSE Russell announces that the Market Accessibility Level for India will be reclassified from 0 to 1, and Indian government bonds will be included in the FTSE Emerging Markets Government Bond Index (EMGBI), starting in September 2025,” FTSE Russell said in a statement in the early hours on Wednesday.
“This decision reflects the continued progress in the accessibility of the market for these securities for international investors and the growing importance of the Indian government bond market in mainstream global emerging markets bond portfolios.”
Government bond yields may fall by up to 5 basis points in the early hours of trade on Wednesday as the prospect of sustained overseas flows is likely to boost market sentiment. However, an hour into trade, bond traders will take fresh cues from the Reserve Bank of India’s policy statement which is scheduled at 10 am. Yield on the 10-year government bond closed at 6.82% on Tuesday.
“As of the October 2024 index profiles, 32 INR-denominated Indian government FAR (Fully Accessible Route) bonds (USD 473.8 billion in par amount outstanding) are projected to be eligible for the EMGBI, representing 9.35% of the index on a market value weighted basis,” FTSE Russell’s note read.
Local bond traders broadly expect foreign investment worth $3-4 billion to flow to the Indian bond market due to the inclusion in the FTSE EMGBI.“Contrary to market chatter of AUM tracking the index being as high as USD4.6tn, our assessment (based on conversations with some index providers) is that FTSE EMGBI is tracked by not more than USD40bn of AUM (likely lesser), implying not more than USD 4 billion of passive flows and some subsequent active flows for us,” said Madhavi Arora, lead economist at Emkay Global Financial Services.FTSE Russell acknowledged the growing importance of the Indian government bond market in mainstream global emerging markets bond portfolios, while thanking the Reserve Bank of India for its dialogue and commitment to enabling international investment in local bonds.
FTSE’s decision comes after two other major global bond index providers – JP Morgan and Bloomberg – have included Indian sovereign debt in their indices.
Local currency, fixed-rate Indian government bonds eligible under the RBI’s Fully Accessible Route category will be included in the FTSE EMGBI as well as the regional FTSE Asian Government Bond Index (AGBI) and the FTSE Asian-Pacific Government Bond Index (APGBI) and indices that derive membership from them, FTSE Russell’s note read.
“Pricing will be sourced from LSEG Pricing Service and represent a 6:00 p.m. Tokyo (2:30 p.m. Mumbai) snap time. All Indian government bonds that are eligible under the FAR programme and meet other index inclusion rules will be added to the index, including securities with an original tenor of 14-years and 30-years issued prior to 29 July 2024,” the note read.
In July, the RBI said that it had decided to exclude all new securities of 14-year and 30-year tenors from the Fully Accessible Route.
India is projected to comprise 10% of the index on a market value weighted basis in the EMGBI 10% Capped Index and 9.73% of the AGBI on a market value weighted basis.
According to statistics provided by FTSE Russell, the total market value of the EMGBI including India stands at $5.2 trillion as on September 30, 2024.
In September 2023, JP Morgan had announced the inclusion of Indian FAR government bonds in its EM index, effective from June 28, 2024. Meanwhile, Bloomberg had announced the inclusion of local bonds in its EM index starting from January 2025.
Foreign portfolio investment in FAR bonds has risen by Rs 1.5 trillion or around $17.8 billion, since September 22, the day that JP Morgan made its announcement.