Bloomberg Proposes Inclusion of Indian FAR Bonds in EM Local Currency Index

Key Takeaways:

• Bloomberg Index Services has proposed the inclusion of Indian FAR bonds in its emerging market local currency index.
• The inclusion will be phased in over a 5-month period starting in September 2024, with an initial weight of 20% of their full market value, increasing in increments until reaching 100% in January 2025.
• The proposal has the potential to result in incremental foreign capital flows into the Indian bond market.
• India will continue to be excluded from the Bloomberg Global Aggregate and related indices.
• Once completely phased into the Bloomberg EM 10% Country Capped Index, India FAR bonds will be fully capped at 10% weight within the index.

The proposal by Bloomberg Index Services to include Indian bonds under the fully accessible route (FAR) in its emerging market local currency index is a significant development for India’s bond market. The inclusion of Indian FAR bonds in the Bloomberg EM Local Currency Indices is set to be phased in over a 5-month period starting in September 2024. The initial weight of FAR bonds will be 20% of their full market value in September, and this weight will be increased in increments of 20% of their full market value every month over the 5-month period, ending in January 2025, when they will be weighted at their full market value (100%) in the indices.

This proposal has the potential to result in incremental foreign capital flows into the Indian bond market. The news of JPMorgan’s index inclusion had already led to Finance Minister Nirmala Sitharaman stating that this could result in inflows of over $23 billion. The Indian government has been discussing the inclusion of its securities in global indexes since 2013, and the introduction of securities exempt from foreign investment restrictions under the “fully accessible route” (FAR) by the Reserve Bank of India in April 2020 has paved the way for this development.

It’s important to note that India will continue to be excluded from the Bloomberg Global Aggregate and related indices. Once completely phased into the Bloomberg EM 10% Country Capped Index, India FAR bonds will be fully capped at 10% weight within the index. At that point, the Indian rupee will become the third largest currency component, following the Chinese Renminbi and the South Korean Won, within the Bloomberg EM Local Currency Index.

This proposal by Bloomberg has sought feedback on the proposed inclusion of India bonds by January 25. If implemented, it will have a significant impact on the Indian bond market and the country’s position within the Bloomberg EM Local Currency Index.

This development is indicative of the growing recognition of India’s bond market and its potential to attract foreign investment.

FAQ:

Q1: What is the proposal by Bloomberg Index Services?

A1: Bloomberg has proposed the inclusion of Indian bonds under the fully accessible route (FAR) in its emerging market local currency index.

Q2: How will the inclusion be phased in?

A2: The inclusion of Indian FAR bonds will be phased in over a 5-month period starting in September 2024, with an initial weight of 20% of their full market value, increasing in increments until reaching 100% in January 2025.

Q3: What impact is expected from this proposal?

A3: The proposal has the potential to result in incremental foreign capital flows into the Indian bond market.

Q4: Will India be included in other Bloomberg indices?

A4: India will continue to be excluded from the Bloomberg Global Aggregate and related indices.

Q5: What will be the weight of India FAR bonds once completely phased into the Bloomberg EM 10% Country Capped Index?

A5: India FAR bonds will be fully capped at 10% weight within the index.