India defers govt bond index inclusion to next year; $30 bln opportunity pushed back due to operational issues

India defers govt bond index inclusion to next year; $30 bln opportunity pushed back due to operational issues

India has deferred the planned inclusion of the government bonds in the JP Morgan emerging market global index to next year, as was being speculated on the street. The bond inclusion in the global index may have been pushed back to early 2023, as the Government of India still needs to address various operational issues, Reuters reported citing unidentified sources. Earlier, Goldman Sachs and Morgan Stanley had predicted the bond index inclusion would happen only in the 2nd or 3rd quarter of the next year. The Indian government began considering listing its securities for an inclusion in global bond indices in 2013. However, restrictions on foreign investments in Indian debt meant that the country had to roll out a number of steps before its securities could be eligible.

Goldman Sachs said India bonds could be included in the index with a 10 per cent weightage, the maximum for a country in the index, resulting in potential inflows of $30 billion from the move. Meanwhile, Barclays also said India could possibly be added to the Bloomberg Global Aggregate bond index.

If successful, India would be the last major emerging market to be added to the JP Morgan index, according to Reuters. Earlier this month, Morgan Stanley estimated that India’s inclusion could result in additional flows of as much as $30 billion within 10 months into the Indian government bond market. Last year, Morgan Stanley predicted that it could generate $170 billion to $250 billion of inflows over the next decade. “Most of JPMorgan’s index investors are in favour of including India in the index, but think issues such as investor verification and settlement rules need to be ironed out first,” Reuters reported citing three unidentified sources.

Bonds listed on global indices are settled through international platforms, including Euroclear, outside a country’s borders. It may be noted that Russia’s exclusion from the JPMorgan gauges came after it invaded Ukraine. In the Government Bond Index – Emerging Markets Global Diversified, or GBI-EM index, Russia had a weight of about 8 per cent before it was removed, and now there are seven countries with a weight of 10 per cent each and 13 countries sharing the remaining 30 per cent, according to the Morgan Stanley note.

Earlier this month, Bloomberg noted that India was ‘on track’ to be placed on index watch for inclusion in JPMorgan’s bond index.