India to join FTSE Russell EMGB index starting September 2025
Source: Business Standard
FTSE Russell announced that it will include India’s sovereign bonds in its Emerging Markets Government Bond Index (EMGBI) starting September 2025. The inclusion of India’s debt in the $4.7 trillion EMGBI will take place over a six-month period.
According to FTSE, India’s bonds will constitute 9.35 per cent of the index on a market-value weighted basis, making it the second-largest component after China.
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Bond market participants said that the inclusion will not have an immediate effect on the market given that the date of official inclusion is too far away.
“It will not have any impact because it is too less and too far away,” said Vikas Goel, managing director and chief executive officer, PNB Gilts. “The $5 billion in September 2025, who will bother,” he added.
This follows the inclusion of local bonds in JP Morgan and Bloomberg Index Services, which could lead to significant inflows into India’s government bonds market. In September 2023, JP Morgan announced the inclusion of India’s bonds in the JPMorgan Government Bond Index-Emerging Markets (GBI-EM). Subsequently, on March 5 of the current year, Bloomberg Index Services revealed that Indian government bonds would be added to its Emerging Market Local Currency Government Index starting January 31, 2025.
Since JP Morgan’s announcement on September 21, 2023, India’s debt market has seen net inflows totalling Rs 1.49 trillion. The JP Morgan bond index inclusion process will be phased over a 10-month period, with 1 per cent weight included each month until March 31, 2025. Indian bonds will have a 10 per cent weight, similar to China.
Since the official inclusion on June 28 of the current year, the debt market has witnessed Rs 2,234 crore worth of net inflows. A net total of Rs 62,974 crore was infused into government securities designated under the Fully Accessible Route (FAR) during the same period, Clearing Corporation of India (CCIL) data showed.
Indian securities will be incorporated into FTSE’s EMGBI after spending the last three years on the index provider’s watch list. As of the October 2024 index profiles, 32 Indian government FAR bonds, denominated in INR and with a combined outstanding par value of $473.8 billion, are projected to be eligible for inclusion in the EMGBI.
Meanwhile, the yield on the benchmark 10-year government bond fell in early trade after FTSE Russell announced that it will include Indian bonds in its indices.
The yields fell further to 6.74 per cent during the day, before settling at 6.77 per cent, following the domestic rate-setting panel decision to change the stance to neutral. The benchmark yield had settled at 6.81 per cent on Tuesday.
Market participants said that the yields inched up slightly by the end of trade as the market perceived the tone of the policy as hawkish. However, the benchmark yield is seen moderating by the end of the current financial year once the Reserve Bank of India (RBI) initiates a rate cut.
“The 10-year yield was trading lower at 6.75 per cent post the policy. We expect the 10-year yield to trade in the range of 6.7 per cent to 6.8 per cent in the near term and ease to 6.6 per cent to 6.7 per cent by the end of this fiscal year with the start of RBI’s rate-cutting cycle and a moderation in US yields (amid Federal Reserve rate cuts – 50 bps cut expected in the remainder of 2024 and 5-6 rate cuts expected in 2025),” said HDFC Bank in a note.
First Published: Oct 09 2024 | 7:25 PM IST
