Indian bonds’ inclusion in global index likely in 2023, says Goldman Sachs

Indian bonds’ inclusion in global index likely in 2023, says Goldman Sachs

Indian government bonds are expected to be included in the JPMorgan Government Bond Index-Emerging Markets (GBI-EM) in 2023, according to analysts at multinational investment bank Goldman Sachs, owing to resolution of some operational issues and diversification of the index. The index monitors government bonds in emerging markets.

In case India’s weight in the index reaches its maximum potential of 10%, the country will receive around $30 billion of passive inflows of foreign funds, aiding in containing the balance of payments deficit, according to the Goldman Sachs report. India’s current account deficit decreased to $13.4 billion or 1.5% of the GDP in Q4FY22, according to Reserve Bank of India (RBI) data.

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With Russia removed from the index earlier this year, the current index has become slightly more concentrated with bonds of some countries having higher market weight capitalisation.

Additionally, new regulations have allowed local custodians to pre-fund trades on behalf of foreign investors, and this will also help India’s case for inclusion in the index. As per earlier norms, foreign investors looking to trade in Indian bonds needed to pre-fund around 3% cash in an onshore margin account, which added to administrative burden.  

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In March 2020, the RBI introduced the fully accessible route (FAR), which allowed foreign investors to invest in Indian rupee bonds without restrictions, some of which will become index eligible by 2023. Currently, about one-quarter of Indian government bonds are FAR bonds.

While account opening is still burdensome – the issue can be addressed by a longer lead-time for inclusion – there has been some progress on resolving operational issues such as posting margin requirements and extended settlement times, the report said.