Bloomberg on Tuesday 5th March 2024 announced its decision to include Indian Government Securities known as “Fully Accessible Route (FAR) bonds”, in the Bloomberg Emerging Market (EM) Local Currency Government Index and related indices. However, this inclusion will be phased in over 10 months, starting from January 31, 2025, instead of the initially projected timeline of September 2024.
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JP Morgan’s Index inclusion starting on June 28, 2024
This development marks the second major global index to include Indian Bonds, following JP Morgan’s announcement of the Index inclusion starting on June 28, 2024.
According to the Bloomberg press release, Indian FAR bonds will initially be included in the Bloomberg Emerging Market Local Currency Government indices with a weight of 10% of their full market value as of January 31, 2025. However, the weighting of FAR bonds will be gradually increased in increments of 10% every month of their full market value in the indices by October 2025 over the subsequent 10-month period.
The indices in scope for inclusion encompass the “Bloomberg EM Local Currency Government Index,” the “Bloomberg EM Local Currency Government Index 10% Country Capped Index,” and all related sub-indices.
Despite this, India will remain away from the Bloomberg Global Aggregate and related indices. Analysts suggest that the delay in inclusion in the emerging market indices will consequently delay India’s inclusion in the Global Aggregate until 2025-26.
Inclusion can generate inflows of USD 2-3 billion to India
Gaura Sen Gupta from IDFC First Bank explained, “This is a smaller index and expected to generate inflows of USD 2-3 billion to India. The period of inclusion has been increased to 10 months from the earlier proposal of 5 months.”
Upon complete integration into the “Bloomberg Emerging Market 10% Country Capped Index,” India will be joining China and South Korea as markets reach the 10% cap. Within the market cap-weighted version of the index, India is expected to become the third-largest country after China and South Korea.
The January 31st, 2024 data suggest that the Index would include 34 Indian Securities which will represent 7.26% of the USD 6.18 Trillion Index on a Market Value weighted Basis.
Important marker in the development of India’s financial markets
Michael R Bloomberg, founder of Bloomberg remarked, “This is an important marker in the development of India’s financial markets and a reflection of India’s rapidly growing importance to the global economy.” India FAR bonds will be fully capped at a 10% weighting after being fully integrated into the Bloomberg Emerging Market 10% Country Capped Index.
Thereafter, the rupee may become the third-largest currency component, following the Chinese renminbi and the South Korean won, within the Bloomberg Emerging Market Local Currency Index, as stated by Bloomberg Index Services Limited.
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In the words of Nick Gendron – global head of fixed income index product at Bloomberg Index Services Limited, “The Indian economy is on a steady growth trajectory, and inclusion of Indian FAR Bonds in Bloomberg Emerging Market Local Currency Government Index is a key milestone amidst the measures India has taken to open its bond markets.”
