Bloomberg to add India to EM bond indices from Jan 31, 2025

Bloomberg on Tuesday, March 5 announced the inclusion of India Fully Accessible Route (FAR) bonds in the Bloomberg Emerging Market (EM) Local Currency Government Index and related indices. These bonds will be phased in over a ten-month period, starting January 31, 2025.

Indian FAR bonds will be included in the Bloomberg EM Local Currency Government indices with an initial weight of 10% of their full market value. The weight of these bonds will be increased in increments of 10% of their full market value every month over the ten-month period ending in October 2025.

The indices which could be included are the Bloomberg EM Local Currency Government Index, the Bloomberg EM Local Currency Government Index 10% Country Capped Index, and all related sub-indices.

India is expected to join both China and South Korea as markets that reach the 10% cap, once completely phased into the Bloomberg EM 10% Country Capped Index. In the market cap weighted version of the index, India is expected to be third, only behind China and South Korea.

As per January 31, 2024 data, the index would include 34 Indian securities and represent 7.26% of a $6.18 trillion index on a market value weighted basis, Bloomberg stated in a release.

In DBS Bank, a flow in of $3-4 billion is expected due to inclusion in Bloomberg EM bond index. Inflow will be lesser as the inclusion is in the EM index and not the BBG global bond index.

Ashhish Vaidya, Managing Director and Head of Treasury and Markets, DBS Bank India said, “This is a Bloomberg Emerging Market Index, so it has a much smaller AUM under consideration. We expect atleast $3-4 billion to come in because of this inclusion. The larger index is the global Bloomberg index. Market was speculating earlier that India will be included as a part of the global index, so if that was the case the amounts would have been much larger.”

In Kotak Mahindra Mutual Funds, a $2.5-3 billion flow in is expected with the inclusion in Bloomberg index.

Lakshmi Iyer, Kotak Mahindra AMC said, “This is the emerging market part of the Bloomberg index where the total incremental amount will be roughly about $2.5-3 billion. The Bloomberg aggregate where the total size is over $3 trillion, probably this could be a baby step in the making. But any form of inclusion is welcome. When the announcement ab-initio happened, the market was speculating that it will be larger index first and that would have shrunk the bond yields to as low as 7%, but small steps are always a happy thing to be."

She added, "It also coincides at a time where Indian currency is having a dream innings in terms of being the most stable currency across the world in the last 18 months. So from a long to medium term perspective it would still have a positive rub-off effect on bond yields which will get much more attractive from a foreign investors standpoint.”