Bloomberg EM Index inclusion to draw $3-4 billion inflows to India; 'comparatively lower', says DBS head

Bloomberg Index Services said it will add India Fully Accessible Route (FAR) bonds in the Bloomberg Emerging Market Local Currency Index from January 31, 2025.

Bloomberg adding India to its Emerging Market index is expected to bring inflows worth $3-4 billion, said Ashhish Vaidya, head of treasury at DBS Bank. However, the inclusion is in Bloomberg Emerging Market index and not the Bloomberg Global Bond index, so inflows are supposed to be comparatively lower, said Vaidya in a conversation with CNBC TV18.

"The market was speculating that Indian bonds could be included as a part of the Bloomberg global index. If that was the case, the amount of inflows could have been definitely much larger," he said.

Bloomberg Index Services on March 5 said it will add India Fully Accessible Route (FAR) bonds in the Bloomberg Emerging Market 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.

The amount of inflows expected in Indian Bonds through the Bloomberg Emerging Market Index is comparatively smaller than the JP Morgan Emerging Market index. JP Morgan's announcement in September last year to include Indian bonds in its emerging-market index was expected to attract significant foreign investments around $40-50 billion in the near-term.

"This could be a baby step in the making because roughly the move will bring around $2-3 billion worth inflows through the Bloomberg Emerging Market index. On the other hand, size of Bloomberg global index in itself is about $3 trillion," said Lakshmi Iyer, chief executive officer of Investment and Strategy at Kotak Alternate Asset Managers.

In a small-to-medium term perspective, the India bond inclusion will have a positive rub-off effect on the bond yields, said Iyer. This coincides at a time when the Indian currency has been the most stable currency for the last 18 months, Iyer added.

The weight of India FAR bonds will be increased in increments of 10 percent of their full market value every month over the 10-month period ending in October 2025, at which point they will be weighted at their full market value (100 percent) in the indices.