Bloomberg defers India’s inclusion into global index, Pg 19

Key Highlights:

• Bloomberg Index Services Ltd. (BISL) has again deferred India's inclusion in the Bloomberg Global Aggregate Index, citing the need for further improvements in the country's foreign investor accessibility.
• The review follows the Government and Reserve Bank of India (RBI) measures announced on June 5, aimed at easing investment norms and improving access to India's debt market.
• BISL acknowledged India's progress but stated that reforms need to be operational for a longer period before index inclusion can be considered.
• Inclusion in the global bond index would significantly enhance foreign portfolio investment (FPI) inflows into India's government securities market.
• The decision comes after J.P. Morgan and FTSE Russell had already announced the inclusion of Indian government bonds in their global bond indices.

Detailed Insights:

• India has progressively liberalised its government securities market through initiatives such as the Fully Accessible Route (FAR), allowing unrestricted foreign investment in specified government bonds.
• The June 5 reforms addressed issues such as withholding tax, investment processes and operational ease to improve the experience of foreign investors.
• Global bond index inclusion is expected to attract passive investment flows, as international funds tracking these indices automatically allocate investments to eligible Indian bonds.
• Higher foreign participation can reduce the government's borrowing costs, deepen the domestic bond market and improve overall market liquidity.
• Despite geopolitical uncertainties and global capital flow volatility, India's bond market continues to attract investor interest because of its strong macroeconomic fundamentals.
• The decision highlights that market accessibility, operational efficiency and investor confidence remain as important as macroeconomic stability for global index inclusion.

Key Concepts Involved:

• Bloomberg Global Aggregate Index: A global benchmark tracking investment-grade government and corporate bonds across major markets.
• Fully Accessible Route (FAR): A framework that permits non-residents to invest without limits in specified Indian government securities.
• Foreign Portfolio Investment (FPI): Investment by foreign investors in a country's financial assets such as equities and bonds.
• Passive Investing: An investment strategy that replicates a market index rather than actively selecting securities.