India is set to join FTSE Russell’s Emerging Market bond index next year, citing improvement in market access.
India’s debt will be included in FTSE’s $4.7 trillion Emerging Markets bond index next September, with the inclusion happening over a six-month period. It will carry a final weightage of 9.35%, which is second only to China in the index.
The development comes after inclusion by JP Morgan and Bloomberg Index, and could potentially drawing fresh global investment into Indian bonds, which have attracted $18.5 billion worth of investment since September last year.
Indian bonds will be included in the $4.7 trillion-valued FTSE’s EM Global Index after being on the watch list for the last three years.
Aside of India, South Korea is the other major emerging market to join FTSE Russell’s global bond index next year.
Nikki Stefanelli, FTSE Russell’s global head of FICC index policy said, “It’s really clear to us that India is now part of the mainstream emerging market (EM) choices, becoming an increasingly important part of those portfolios.” This also reflects India’s growing significance in global investment portfolios, especially after its debt gets added to FTSE’s EM bond index.
The announcement comes at a time of surge in overseas interest in Asian debt securities, as yields in the US and Europe are declining. This shift also makes Asian bonds more attractive to global investors seeking higher returns.
Madhavi Arora, Chief Economist at Emkay Global said, “This action completes India’s addition into the three major global EM bond indices, with FTSE noting progress on accessibility of Indian bonds for foreign investors as a key reason for its inclusion now.”
Emkay Global highlighted that the inclusion of Indian bonds in the FTSE index will have a structural positive impact. It will boost credibility among Foreign Portfolio Investors (FPIs) and improve liquidity as well as the ownership base of government securities, said Emkay, adding that the development is expected to lower India’s risk premium and reduce funding costs, including for corporate bonds.
In its March review, FTSE had postponed the inclusion of Indian bonds due to concerns over taxation, registration, and settlement issues. However, it acknowledged India’s progress in improving the accessibility of its debt securities.
