Context: 

Bloomberg to include Indian bonds in the Bloomberg Emerging Market (EM) Local Currency Government Index and related indices from January 31, 2025.

After JP Morgan, Bloomberg to Include Indian Bonds in EM Index

• Phased inclusion: 

  • The inclusion of India Fully Accessible Route (FAR) bonds in the Bloomberg EM indices will happen in a phased manner spread over a ten-month period.
    • Indian FAR bonds will be initially included with a weight of 10 percent of their full market value.
    • The weight of FAR bonds will be increased in increments of 10 percent of their full market value every month till October 2025, when  they will be weighted at their full market value in the indices.

• The Indices:  

  • It includes the Bloomberg EM Local Currency Government Index, the Bloomberg EM Local Currency Government Index 10% Country Capped Index, and all related sub-indices.
    • India will however be excluded from the Bloomberg Global Aggregate and related indices.
    • The index would include 34 Indian securities and represent 7.26 per cent of a $6.18 trillion index on a market value weighted basis.

• Eligibility criteria: 

• • The local currency India bonds will be comprised of INR-denominated India government bonds which are placed through the Fully Accessible Route (FAR) and should  have a minimum amount outstanding of Rs 10 billion .

Significance of the Inclusion

• Upgrade in status: 

  • India’s continued emergence as a global financial center promises to be one of the most significant economic developments of this decade  and the inclusion is a reflection of India’s growing importance to the global economy. 
    • JP Morgan Chase & Co  had last year  announced a phased inclusion of Indian government bonds to JP Morgan GBI-EM Global index over a 10-month period starting June 28, 2024.

• Enable access to Indian Markets: 

  • The inclusion will help connect more investors to India and provide the foreign Investors a new emerging avenue for their capital by increasing  access to and participation in the Indian markets

• Strengthening of Indian Rupee: 

  • Indian Rupee is expected to become the third largest currency within the Emerging Markets following the Chinese Renminbi and the South Korean Won,

• Capital inflows: 

  • Inclusion of domestic bonds to global indices will help bring in dollar inflows into India and ensure a stable financing of the current account gap of the country.
    • Direct inflows of around $20-25 billion is estimated into the country over the next two years after the  JP Morgan inclusion. 

• Attract Investment: 

• • India’s inclusion in the Bloomberg Bond Index is expected to attract investment exceeding  $40 billion in foreign funds into the G-Secs market over the next two years.

• Stable macro economics: 

  • The Inclusion is a sign of a mature and stable financial market and a vote of confidence in India’s macro financial stability

News Source: The Indian Express