India needs stronger credit rating to join $29.5 tn global bond index: FTSE Russell top executives | Stock Market News

Mumbai: India would require a stronger credit rating as a prerequisite for inclusion into the FTSE World Government Bond Index, a 25-country benchmark with a market value of $29.5 trillion, said two senior executives at the compiler of indices.

There are 18 different criteria that need to be met to gain entry to the World Government Bond Index, “the most difficult benchmark to gain access to in any asset class”, Fiona Bassett, chief executive; and Scott Harman, the head of fixed income, currencies and commodities at FTSE Russell, said in an interview.

India is currently rated at the lowest investment grade by global rating agencies, something the government has been unhappy about.

“Typically, we will work with policy makers to help them in terms of understanding the framework,” said Bassett. “Clearly, there’s a desire for inclusion and so quite a lot of our work is around educating and all of our indices are transparent.”

Come September, Indian government bonds will be included in the FTSE Emerging Markets Government Bond Index (EMGBI), which had a market value of $4.7 trillion as on 31 January. However, inclusion into the broader World Government Bond Index would require India to meet a few more conditions. The index provider had kept India in its watchlist for a few years before deciding to add it to the emerging market bond index.

Read more: Govt to roll out credit rating for rural borrowers in six months

Global investors with passive investment strategies buy stocks and bonds featuring in global indices, and FTSE Russell’s addition of Indian bonds promises to attract investments in them.

“India is a hugely strategically important market for us actually at FTSE Russell,” said Bassett, who joined as the chief executive in 2023 and is on her first trip to India. “At the London Stock Exchange Group (LSEG), we employ 7,000 people in India, making India the organization’s largest employee base globally.”

Global benchmark provider FTSE Russell is wholly owned by the London Stock Exchange Group.

India has made some headway in getting included in global bond indices. In March 2024, Bloomberg said it will add a set of Indian government bonds to its emerging market index. Bloomberg’s inclusion came about seven months after JP Morgan decided to include India’s securities available under fully accessible route (FAR) in its GBI-EM Global index suite from 28 June 2024.

FTSE Russell’s Harman said one of the big catalysts for inclusion was the foreign FAR bond programme in India which made it easier for foreign investors to access the market. “There was still some friction around account opening processes and taxation which gradually improved,” he said.

FAR Program as a Key Catalyst

Introduced in 2020, FAR is a separate channel allowing non-residents to invest in specified Indian government securities without investment ceilings. Data from National Securities Depository Ltd (NSDL) showed net investments by foreign portfolio investors in FAR securities of $3.4 billion in 2024. The number stood at $1.7 billion so far in February.

“At the moment, India doesn’t meet some of the mechanical criteria for inclusion in the FTSE World Government Bond Index. It meets the market size requirement, but for example doesn’t have a sufficiently high credit rating and also clearbility is a key thing, so that’s something that I think would be important. These are some of the slight nuances that would need to be addressed for it to be considered for a level two,” said Harman.

China is a part of the FTSE World Government Bond Index and Harman said it took China three-four years to graduate from the emerging market index to the global one. India, he said, is certainly on that trajectory. “[But] there’s still a fair way to go to be comparable with UK Gilts or the US Treasury market.”

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