Bloomberg to add Indian bonds to emerging market indices in January 2025
Up to $3 bn inflows expected; they won’t join Bloomberg Global Aggregate index
Bloomberg on Tuesday announced including Indian government securities called “Fully Accessible Route (FAR) bonds” in the Bloomberg Emerging Market (EM) Local Currency Government Index and related indices. This will be done over 10 months, starting January 31, 2025, instead of September 2024, which was envisaged earlier.
This is the second major global index that will be including Indian bonds. JP Morgan had announced index inclusion from June 28, 2024. “Indian FAR bonds will be included in the Bloomberg EM Local Currency Government indices with an initial weight of 10 (per cent) of their full market value on January 31, 2025,” a press release from Bloomberg said.
The weighting of FAR bonds will be increased in increments of 10 per cent of their full market value every month over the 10-month period ending in October 2025, when they will be weighted at their full market value in the indices. The indices in scope for inclusion include the “Bloomberg EM Local Currency Government Index”, the “Bloomberg EM Local Currency Government Index 10 per cent Country Capped Index”, and all related sub indices, it said.
India will continue to be excluded from the Bloomberg Global Aggregate and related indices.
The delay in emerging market indices would mean inclusion in the Global Aggregate will be also delayed till 2025-26, analysts said.
“This is a smaller index and expected to generate inflows of $2-3 billion to India. The period of inclusion has been increased to 10 months from the earlier proposal of five months,” said Gaura Sen Gupta, economist with IDFC First Bank.
Once completely phased into the “Bloomberg Emerging Market 10% Country Capped Index”, India will be expected to join China and South Korea as markets that reach the 10 per cent cap. Within the market cap weighted version of the index, India is expected to be the largest country after China and South Korea.
The data as of January 31, 2024, shows 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.
“This is an important marker in the development of India’s financial markets and a reflection of India’s growing importance to the global economy,” said Michael R Bloomberg, founder, Bloomberg LP.
Once completely phased into the “Bloomberg Emerging Market 10% Country Capped Index”, India FAR bonds will be fully capped at a 10 weighting within the index. At that point, the rupee is expected to 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 Ltd said.
“The Indian economy is on a steady growth trajectory and inclusion of Indian FAR Bonds in our Emerging Market Local Currency Government Index marks a key milestone amidst the measures India has taken to open its bond markets,” Nick Gendron, global head of fixed income index product, Bloomberg Index Services Ltd.
The inclusion path
Period of inclusion increased to 10 months, from earlier proposal of 5 months
India FAR bonds to be fully capped at 10% weight in the index
Within mcap weighted version index, India is expected to be the 3rd largest country, after China and South Korea
Increased FPI’s FAR holdings
Investment by foreign portfolio investors (FPI) in Indian government securities through the FAR rose over 100 percent since start of this fiscal till March 5.
In absolute terms, FAR holdings of FPIs stood at Rs 1.68 lakh crore on March 5, 2024, compared to Rs 77,441.358 crore on April 3, per Clearing Corporation of India Ltd data.
The investment by foreign investors has increased in the last few months, especially after the announcement of Indian bond inclusion in JP Morgan Bond Index.
This is because most FAR securities are eligible for inclusion in the index.
With Thanks Reference to: https://www.business-standard.com/economy/news/india-govt-bonds-in-bloomberg-emerging-market-index-from-january-2025-124030500969_1.html and https://www.moneycontrol.com/news/business/india-bonds-in-bloomberg-em-bond-indices-may-bring-2-3-billion-inflows-say-experts-12408061.html
