India can no longer be excluded in global bond indices

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Foreign portfolio investors have this opportunity to buy bonds worth $203 billion (outstanding value) without any ceiling limit (under FAR route) across 14 different tenors. Such a significant market calls for the inclusion of India in global bond indices, according to a report in The Economic Times.

The report, which quoted the data from the Credit Corporation of India, further noted that India’s potential weight in the global bonds indices such as Bloomberg-Barclays and JP Morgan, could be in a wide range of 0.3 to 10 percentage points.

“We believe that global bond index providers, like JPM and Bloomberg-Barclays, will find it very difficult to ignore this market for long,” the report quoted B. Prasanna, Group Head – Global Markets, ICICI Bank, as saying in the report.

The debt market in the country could see fund inflows to the tune of $250 billion in the next 10 years if India is included in global bond indices. With funds of that level flooding the market, the government’s borrowing cost could come down by 50 basis points, the report said quoting a forecast by Morgan Stanley.

Experts speak

If Only the FAR (Fully Accessible Route) securities were to be included in the JPM Emerging Markets Bond Index, India would be in a position to hit the 10% weight cap in the index.

Abhay Gupta, a Singapore-based analyst from BofA Securities, told the daily that “FAR eligible securities, at around 18% of outstanding sovereign bonds currently, are still large enough in comparison to many other countries in the indices

Potential inflows

If Indian bonds get close to 0.35% weight (based on market capitalization) on inclusion in the Bloomberg Global Aggregate index, the report said, an estimated $7-8 billion could flow in. Getting the maximum allowed 10% in JPM GBI-EM GD, could translate into around $22-25 billion inflow, the report said quoting BofA Securities.