Bloomberg may include India gilts

Bloomberg Index Services on Monday proposed including Indian government securities (G-secs) in its emerging market (EM) local currency index from September, a move that could lead to billions of dollars of capital inflows into the country. This comes four months after the inclusion of Indian gilts in JPMorgan’s EM index.

After JPMorgan’s announcement in September last year, finance minister Nirmala Sitharaman had said that the action could channelise $23 billion in foreign capital flows into India.

To boost overseas patient capital inflows, the Reserve Bank of India introduced G-secs that were exempt from foreign investment restrictions under a “fully accessible route” (FAR) in April 2020.

“Under the proposal, inclusion of India FAR bonds in the Bloomberg EM local currency indices is to be phased in over a 5-month period starting in September 2024,” the index provider said in a statement.

As a result, the Indian FAR bonds will be included in the EM local currency indices with an initial weight of 20% of their full market value in September 2024. The weight of FAR bonds will be increased in increments of 20% of their full market value every month over the 5-month period ending in January 2025, at which point they will be weighted at their full market value (100%) in the indices, it said.

Once completely phased into the Bloomberg EM 10% Country Capped Index, India FAR bonds will be fully capped at 10% weight within the index. At that point, the Indian rupee will become the third largest currency component, following the Chinese Renminbi and the South Korean Won, within the Bloomberg EM Local Currency Index, it added.

Bloomberg has sought feedback on the proposed inclusion of India bonds by January 25.

The bond inclusion by JP Morgan without any capital gains tax concession on the bonds indicates the attractiveness of India, which has been recognised to be the fastest-growing G20 economy in 2023 and 2024. JPMorgan’s India bond inclusion will start on June 28, 2024, and extend over 10 months with 1% increments on its index weighting, as India is expected to reach the maximum weighting of 10%.

Even though India has been exploring with index service providers for overseas listing since 2019-20, the progress was stalled due to the government’s stand not to give any exemption from applicable capital gains tax.