“Following the advisory committee’s favourable recommendation, the process now goes to the relevant global index body,” one of the people said. “Their product teams are working out modalities of facilitating inclusion by September or October.”
Inclusion of Indian bonds in the Bloomberg EM index could bring inflows of $5 billion from passive investors and more likely from active investors, another person said.
Bloomberg Index Services declined to comment on the matter.
Early last month, the index operator said it would start consultations for feedback on including Indian government bonds in the Bloomberg Emerging Market Local Currency Index. It had proposed to start adding Indian bonds in the index in phases starting September and sought suggestions by January 25.
Agencies Weight Increment of 20% Monthly
Bloomberg Index’s January announcement came four months after JP Morgan announced inclusion of Indian sovereign bonds in its emerging markets index starting June 2024. Inclusion of Indian bonds in JP Morgan’s index is estimated to bring inflows of $20-30 billion, treasury executives said.
Bloomberg Index Services had proposed to include fully accessible route (FAR) Indian government securities in a phased manner over five months, starting with 20% weight of the full market value of the bonds in September 2024. The weight would be increased in increments of 20% every month to 100% in January 2025, it had said. After the Indian FAR government bonds are entirely phased into the Bloomberg Emerging Market 10% Country Capped Index, the domestic securities would be fully capped at 10% weight within the index, the document issued in January read.
Large-scale foreign fund inflows into the local market due to inclusion into global indexes are likely to push down Indian sovereign bond yields, in turn making it cheaper for corporate entities to raise funds through debt. Overseas flows are also likely to shield the rupee from global market volatility and lead to the RBI building up its foreign exchange reserves further.
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