Indian bonds not included in FTSE Emerging Market bond index, remain on watch list

Indian government bonds were not included in a key FTSE Russel Government bond index as part of the index's latest review. Instead, Portugal was added to the index.

Similarly, South Korean bonds were also left out of the index. Despite expectations, both Indian and South Korean bonds will remain on the Watch List for at least another six months, extending from the previous September 2023 review.

While South Korea remains under observation for potential inclusion in the FTSE Global Bond Index, India stays on the watch list for its emerging market counterpart. FTSE Russell recognised the strides made in enhancing accessibility to the Indian government bond market.

However, certain criteria for inclusion, such as improved regulatory reporting and tax clearance processes, have not been met by the Indian market, according to FTSE.

This also underscores the challenges some investors encounter in accessing India's bond market. Interestingly, amidst this development, India's debt is slated to join the JPMorgan emerging markets index starting in June of this year.

The inclusion of Indian Government Bonds (IGBs) will be phased in over a ten-month period, commencing on June 28, 2024, and concluding on March 31, 2025, with a monthly weightage increase of 1%.

While JPMorgan sees inflows to the tune of $40 billion in the country's bond market post this move, HSBC sees a $30 billion inflow.

Additionally, Bloomberg will also be including Indian bonds to its Emerging Market bond indices from January 31, 2025, which will also be staggered over a 10-month period. DBS expects an inflow between $3 billion to $4 billion post this inclusion.

FTSE also retained Pakistan on the watch list for potential demotion to frontier market status from a secondary emerging market amid a steady decline in its index weight over the past few years.

In an interview with CNBC-TV18, Jayesh Mehta, Vice Chairman and CEO, of DSP Finance said, "As of right now, there is no disappointment because of this six months extension or other stuff. Completely on the FTSE, nobody's going to look at it. And to be honest, whether they take the inclusion now, in fact, that would have been more painful. Let that get deferred because we don't want so much flow coming into India at one point in time. So that will be good for the country."