<p>Bloomberg bond index inclusion may see $5 billion inflows</p>
Bloomberg bond index inclusion may see $5 billion inflows

The inclusion of Indian bonds in the Bloomberg EM index is expected to attract significant inflows, with projections suggesting up to $5 billion, from both passive and active investors.

Bloomberg Index Services Ltd has announced the inclusion of India’s bonds through the fully accessible route in the Bloomberg Emerging Market Local Currency Index and associated indices. The phased inclusion will span a 10-month period, commencing on January 31, 2025. Utilizing data as of January 31, 2024, the index, based on market value-weighted metrics, would comprise 34 Indian securities, constituting 7.26% of a substantial $6.18 trillion index.

Upon complete integration into the Bloomberg Emerging Market 10% Country Capped Index, India is anticipated to stand alongside China and South Korea, reaching the 10% cap as one of the major markets. In the market cap-weighted iteration of the index, India is poised to secure the position of the third-largest country, following China and South Korea.

The process

The decision to add India’s Fully Accessible Route (FAR) bonds to the Bloomberg EM Local Currency Government Index and related indices follows a consultation process that gathered feedback. However, it’s important to note that Indian bonds will remain excluded from the more widely followed Bloomberg Global Aggregate and related indices.

The 34 Indian bonds will collectively represent 7.26% of the $6.18 trillion index. The weightage of Indian government bonds will see a gradual increase by 10% each month, starting from January 31, reaching full weightage by October 2025. This development positions rupee-denominated bonds alongside Chinese renminbi- and South Korean won-denominated bonds, carrying the maximum weightage on the Bloomberg Emerging Market 10% Country Capped Index. The rupee is poised to become the third-largest currency group across emerging market local currency indices.

To be considered under the fully accessible route, bonds must have an outstanding value exceeding 10 billion rupees and a residual maturity of at least one year. The proposal for India’s gilts’ addition to the index was initially put forth by Bloomberg in January, with the current announcement reflecting the outcome of client consultations.

Throughout each month of the inclusion period, both existing and new eligible bonds will be scaled according to the applicable factor, driving the increase in weightage. The minimum impact is anticipated to be a rise of 23 basis points to 4.22% in the returns of the Bloomberg Emerging Market Local Government Index, while the 10% country-capped index is expected to see returns inching up 3 basis points to 6.06%, according to Bloomberg.

  • Published On Mar 6, 2024 at 08:03 AM IST

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