Bloomberg has is consulting with the market on whether to add Indian government bonds to its emerging market local currency bond indices from September.
The consultation, which opened on 8 January, stated that if added, Indian foreign accessible route (FAR) issuance could comprise up to 10% of the weight of the Bloomberg Emerging Market 10% Country Capped index.
This scenario would also see the Indian rupee become the third-largest currency component in the Bloomberg Emerging Market (EM) Local Currency index after the Chinese renminbi and South Korean won, with 32 Indian securities comprising 6.99% of the $6trn index.
Within the consultation, Bloomberg asked if market participants agree with the proposal to include Indian bonds in its emerging market debt (EMD) index suite and whether they agree with their staggered inclusion over a five-month period.
The index provider said users of the index have until 25 January to submit responses.
Should the proposal gain approval, the next phase would be an official inclusion announcement.
This would likely be followed by a market preparation phase – in which large investors, index providers and other participants would define specific criteria for inclusion – and then as inclusion phase commencing in September.
In a statement, Bloomberg Index Services said: "Following client feedback received during the Bloomberg 2023 fixed income index advisory councils, Bloomberg Index Services Limited (BISL) is launching a consultation to solicit feedback on the proposed inclusion of the India FAR bonds in the index.”
The news follows JP Morgan’s announcement last September that Indian sovereigns with a combined value of $330bn would be added to the JP Morgan GBI-EM Global Diversified index from June 2024.
Lee Collins, head of index fixed income at LGIM, said the inclusion of Indian debt in benchmarks such as JP Morgan’s EMD index could be as significant as China’s inclusion in the index in 2020.
Morgan Stanley forecasted inclusion by JP Morgan could generate $24bn inflows into Indian bonds.
According to Reuters, overseas investors bought $4.2bn of Indian sovereigns between October and December last year, leading to the asset class booking its highest year of asset gathering since 2017.
Bloomberg did not propose Indian government bonds should be added to its headline Bloomberg Global Aggregate index, a move Collins suggested could potentially lead to $10bn inflows.
Bloomberg said it will “continue to monitor related market developments”.