Russia’s exclusion could pave way for India in global bond index

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Russia's exclusion could pave way for India in global bond index

It is possible that Indian bonds will be included in the global index at the expense of Russia

India has the largest bond market among emerging economies not covered by global indices, but bankers say that could change soon, potentially attracting billions of dollars in inflows. Russia’s recent exclusion is one reason for this.

Morgan Stanley expects an announcement of India’s inclusion in the JPMorgan & Chase Co emerging market bond index as early as mid-September with the actual entry in the third quarter of next year.

See Goldman Sachs Group Inc. That the announcement is coming in the last quarter of this year and its inclusion in the second or third quarter of 2023. They both expect India to weight 10%, which is the maximum for a country in the index, and potential inflows of $30 billion from the movement.

Getting India’s high-yield sovereign bonds in global indices would make it easier for foreign investors to put their money into Asia’s third-largest economy through its trillion-dollar debt market.

This will be followed by many false starts over the years that have resulted from caution about debt flows and controversies including one over tax breaks for foreigners.

Russia exclusion JPMorgan metrics after it invaded Ukraine may have added to incentives for index compilers to fill the gap with Indian debt.

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JPMorgan, one of the major index providers, is collecting feedback from investors about India’s inclusion in the Government Bond Index – Global Diversified Emerging Markets, or GBI-EM.

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Over 60% of real money investors are ready or nearly ready for India listing, Morgan Stanley exploratory study show up. A spokesman for JPMorgan in India declined to comment.

“India will provide much-needed diversification to the GBI-EM due to the different structure of its economy and will therefore be a strong addition to the index from a long-term perspective,” said Nivedita Sunil, Portfolio Manager for Asia and Emerging Market Debt. at Lombard Odier (Singapore) Ltd.

“We have consulted with the indicator provider and we support it broadly,” she added.

Bond traders in India had their hopes dashed in the past for an index inclusion.

it was there Extensive forecast In February, the government announced a tax exemption for foreign investors in the budget that would make it easier to trade the country’s debt on platforms like Euroclear.

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Instead, the budget has remained silent on the issue. Officials said they decided not to tax international bond transactions, and that they would like to settle the bonds locally.

“India has its size and weight to act on its own,” said Aninda Mitra, head of macro and investment strategy in Asia at BNY Mellon Investment Management.

“But it is important to make and stick to a strategic decision, rather than sending conflicting signals.”

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Meanwhile, Russia’s weight in the GBI-EM index was about 8% before it was removed, and now there are seven countries with a weight of 10% each and 13 countries that share the remaining 30%, according to Morgan Stanley’s note.

“The exclusion of Russia has made the index more focused and unbalanced,” Morgan Stanley strategists Min Day, Madan Reddy and Jake Teng Kuo wrote in a note in early September.

“And so JPMorgan has a greater incentive to include India even without Euroclear, as long as GBI-EM investors do not object to it.”

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India is currently “on track” to be placed on index watch for inclusion in the JPMorgan Bond Index, according to the bank. It is also on the FTSE Russell watch list for entry into the Emerging Markets Debt Index.

Bloomberg LP is the parent company of Bloomberg Index Services Ltd, which operates indexes that compete with those of other service providers.

Renewed market talk about the index’s inclusion helped revive inflows in rupee-denominated bonds last month after six straight months of outflows.

Foreign inflows will be necessary to meet the country’s growing supply of bonds as its financing needs expand. Yields are heading for a third month of declines with the benchmark 10-year bond yield down more than 30 basis points since June.

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The authorities have taken some steps to relax the rules on foreigners. Recent regulations such as allowing depository banks to pre-finance deals on behalf of foreign investors and extended settlement dates are examples, according to Goldman Sachs. Still, the major issues remain.

“We believe the two biggest operational challenges are account opening time and onerous trading requirements,” said Eric Low, Fixed Income Fund Manager at Manulife Investment Management.

He said it could take up to nine months to open a local Indian bond trading account, but operational restrictions like those were not an “offer blocker” for the company to invest in the market.

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(Except for the headline, this story has not been edited by the NDTV crew and is published from a syndicated feed.)