Indian government bonds could get an additional boost in 2024, with Bloomberg proposing their inclusion in its indices starting September 2024.
"Following client feedback received during the Bloomberg 2023 Fixed Income Index Advisory Councils, Bloomberg Index Services Limited (BISL) is launching a consultation to solicit feedback on the proposed inclusion of the India Fully Accessible Route bonds in the Bloomberg Emerging Market (EM) Local Currency Index," a statement by Bloomberg Index Services Limited said on January 8.
Also Read: A decade in the making, India's global bond index inclusion journey finally ends
As per the proposal, Indian government bonds will be phased in over five months starting September 2024, with each month seeing the addition of 20 percent of the full-market value of the bonds falling under the Fully Accessible Route (FAR) category. As such, the process will be completed in January 2025.
The FAR category includes those bonds that foreign investors can buy without any limits or restrictions.
"Once completely phased into the Bloomberg Emerging Market 10 percent Country Capped Index, India FAR bonds will be fully capped at 10 percent weight within the index. At that point, the Indian Rupee will become the third largest currency component, following the Chinese Renminbi and the South Korean Won, within the Bloomberg Emerging Market Local Currency Index," Bloomberg Index Services Limited.
The Bloomberg proposal comes months after JPMorgan said in September 2023 that Indian government bonds will be a part of its Government Bond Index-Emerging Markets (GBI-EM) global index suite from June 2024. Like the Bloomberg proposal, the inclusion of Indian debt into JPMorgan's indices will be over several months.
However, Bloomberg's proposal does not suggest India's inclusion into its key Bloomberg Global Aggregate and related indices. The index provider added that it will "continue to monitor related market developments".
As part of its consultation process, Bloomberg has asked users of its indices two questions: whether they agree with the proposal to include eligible Indian bonds in the EM Local Currency Indices and if they agree with their inclusion over five months starting September 2024.
Users have been asked to submit their responses by January 25.
"While this change is targeted for implementation effective September 2024, further information on the implementation date will be provided after the end of the consultation period... The survey may result in no changes or outcome," Bloomberg added.
The inclusion of Indian government bonds in global indices is expected to bring billions of dollars of foreign money into the domestic sovereign debt market. According to economists' estimates, the addition of Indian debt to the JP Morgan indices could alone lead to inflows of $24 billion.
Also Read: Five key implications of JPMorgan's India bond index inclusion
While the Indian government has previously welcomed India's inclusion in global bond indices, it is also wary of the move's impact on domestic markets, with Chief Economic Adviser V Anantha Nageswaran noting in September 2023 that ensuring the Indian rupee's competitiveness will be a challenge in the face of foreign inflows.
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