FTSE Russell unlikely to include Indian bonds in index as concerns over ratings, taxation remain

Bonds

Global index provider FTSE Russell is unlikely to include Indian bonds in its government bond index as concerns over India’s ratings and taxation remains, market experts close to the development said.

“FTSE Russell needs countries having ‘A’ ratings and India’s rating is now ‘BBB-‘ with positive outlook, hence inclusion unlikely to happen,” said a person close to development on condition of anonymity.

The review meeting of FTSE Russel will take place in September. India has been on the watch list since March 2021.

In March, the index provider has deferred India’s inclusion in its government bond index due to taxation, registration and settlement issues, even as two other major index providers have announced their inclusions.

Similarly, South Korean bonds were also left out of the index. Despite expectations, both Indian and South Korean bonds will remain on the Watch List for at least another six months, FTSE Russel said.

The index provider in March also said that it will continue dialogue with the Reserve Bank of India (RBI) and seek feedback from a cohort of international investors entering the bond market on the practicalities of their investment experience.

Further, money market experts said that the RBI’s decision to exclude 14-year and 30-year bonds from Fully Accessible Route will also have some issues with this inclusion.

Currently, two bond index providers have added Indian bonds in global bond index, with JP Morgan’s inclusion having got completed last month and Bloomberg’s index inclusion to happen in 2025.

On September 22, 2023, JPMorgan Chase & Co. said it will add Indian government bonds to its benchmark emerging-market index. The index inclusion had taken place on June 28.

Soon after the announcement by JP Morgan, Bloomberg Index Services (BISL) on March 5 said it will add India Fully Accessible Route (FAR) bonds in the Bloomberg Emerging Market (EM) Local Currency Index from January 31, 2025.

The inclusion of these bonds will be phased in over a 10-month period starting on the rebalance date of January 31, 2025, Bloomberg Fixed Income Indices document showed.