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The inclusion of Indian government bonds in Bloomberg’s emerging market index on 31 January is a great first step to allow investors to start getting an experience of the market, a senior official said. Nick Gendron, global head of fixed income product at Bloomberg Index Services Ltd, said in an emailed interview that investors will now have real experience of the Indian market. These investors will then be able to provide feedback on that process.
“So if we get favourable feedback on that, there shouldn't be a reason that we don't consider taking that next step with consulting the market on the Bloomberg Global Aggregate Index inclusion," said Gendron. In March, Bloomberg said it will add a set of Indian government bonds to its emerging market index. Bloomberg’s inclusion comes about seven months after JP Morgan decided to include India's FAR securities in its GBI-EM Global index suite from 28 June 2024.
Joining China, South Korea Global investors with passive investment strategies buy stocks and bonds featuring in global indices, and Bloomberg's addition of Indian in them. Once completely phased into the Bloomberg Emerging Market 10% Country Capped Index, India is expected to join China and South Korea as markets that reach the 10% cap. According to Gendron, the EM local index is about $6.
5 trillion or so in market cap, whereas the Global Aggregate Index is almost $70 trillion overall. “So again, you're talking about ten times the magnitude when you get into the global aggregate." Asked about the prerequisites of inclusion into the Global Aggregate Index, he said that the absolute musts for global inclusion are, having an investment grade rating and “there can't be any issues in hedging the currency if you want to hedge the currency".
“We need an investment grade rating from two of the three major agencies: S&P, Moody's, and Fitch. And obviously, then as you kind of continue this spectrum, we have to look at any issues that hinder the liquidity of the market," he said. That apart, Gendron added that there can't be any capital controls where one cannot get in and out of a bond if one needs to.
“If I must hold it for a certain amount of time, then that becomes problematic. That is why we couldn't even consider India until the FAR programme came into play; as that removed that hurdle." The FAR channel Introduced in 2020, FAR is a separate channel allowing non-residents to invest in specified Indian government securities without investment ceilings.
Data from National Securities Depository Ltd (NSDL) showed net investments by foreign portfolio investors in FAR securities of $3.4 billion in 2024. The number stood at $74 million so far in January.
“India has been a great fixed-income performer. They're one of the top-performing markets in the world last year in 2024, up almost 10% last year relative to a challenging year overall for fixed income. India stood out as a very, very high performer," said Gendron.
Although India has been seen as more resilient than some of its global peers, growth has slowed down in the last two quarters, primarily on the back of slackening private consumption. The rupee has also depreciated against the dollar amid uncertainty around Donald Trump’s presidency. Last year, the local currency lost 2.
9% but the depreciation was lower than some of the other Asian currencies. According to Bloomberg data, yuan lost 3% against the dollar in the same period. “The fund registration process can get quite convoluted and difficult and trading hours were not long enough overall.
Fund registration has become a little bit less cumbersome, but I think there's still concerns there," he said, adding that at this moment, there’s nothing that’s really worrying them about the inclusion..
