Bloomberg announced on Tuesday 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. This move, initially planned for September 2024, will now commence on January 31, 2025.
This marks the second major global index to incorporate Indian bonds after JP Morgan's announcement of index inclusion starting June 28, 2024.
According to a press release from Bloomberg, Indian FAR bonds will initially be weighted at 10% of their full market value on January 31, 2025.
Over the subsequent 10-month period ending in October 2025, the weighting of FAR bonds will increase in increments of 10% until reaching their full market value in the indices. The inclusion encompasses various indices, including the Bloomberg EM Local Currency Government Index and its related sub-indices.
India will remain excluded from the Bloomberg Global Aggregate and related indices. Analysts suggest that this delay in emerging market indices could also postpone inclusion in the Global Aggregate until 2025-26.
Gaura Sen Gupta, an economist with IDFC First Bank, estimated that this inclusion could generate inflows of $2-3 billion to India, noting the extended inclusion period and its significance for India's financial markets.
Once fully integrated into the "Bloomberg Emerging Market 10% Country Capped Index," India is set to join China and South Korea as markets reaching the 10% cap, making it the third-largest country by market capitalization within the index.
Michael R Bloomberg, founder of Bloomberg LP, said "This is a crucial milestone for India's financial markets, reflecting the country's growing importance on the global stage". Nick Gendron, Global Head of Fixed Income Index Product at Bloomberg Index Services Ltd, emphasized the significance of this inclusion amidst India's efforts to open its bond markets.
Bankers tracking the developments anticipate overseas funds worth at least $5 billion entering the Indian market as part of passive flows due to inclusion in the Bloomberg index. This follows JP Morgan's inclusion announcement made five-and-a-half months earlier.
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