New Delhi, Oct 9 2024-
Industry experts on Wednesday hailed India’s inclusion in the prestigious FTSE Russell’s Emerging Market government bond index in September next year, saying this will strengthen the government’s ability to support growth in times of adversity.
FTSE Russell announced that it will add India’s sovereign bonds to its Emerging Markets Government Bond Index (EMGBI) in September 2025. India’s debt will be included in FTSE’s 4.7 trillion dollar Emerging Markets bond index, with the inclusion happening over a six-month period. It will carry a final weightage of 9.35 per cent, which is second only to China in the index.
The development comes after inclusion by the JP Morgan index, and could potentially draw fresh global investment into Indian bonds.
According to experts, the inclusion of India in the FTSE Russell Emerging Markets Bond Index, following its earlier addition to the JP Morgan Index, marks a series of transformative developments for the country.
“These are significant milestones that will have a long-term impact on India’s economic landscape. One of the primary advantages is the increased demand for government bonds, providing the government with more flexibility to raise funds,” said Suresh Darak, Founder, Bondbazaar.
This could allow India to expand its fiscal deficit and fund critical capital expenditure, especially during economic slowdowns.
Furthermore, this inclusion will help improve the capital account surplus, ensuring a steady inflow of foreign currency into India. This, in turn, brings stability to the Indian rupee, which is crucial for both the equity and bond markets, Darak added.
Indian bonds have already attracted nearly 18.5 billion dollars in foreign inflows since JP Morgan announced in September 2023 that it would add Indian bonds to its Emerging Markets index.
According to experts, a stable currency is beneficial for the equity market because it reduces the foreign investors’ expected returns.
For example, if currency depreciation decreases from 4 per cent to 2 per cent, foreign institutional investors (FIIs) would lower their return expectations by 2 per cent, potentially driving a rally in the stock market.
“The same logic applies to the corporate bond market, where FIIs may increase their investments as currency stability preserves their returns,” said Darak.
According to Madhavi Arora, chief economist at Emkay Global Financial Services, the decision will strengthen the demand side of India bonds structurally.
Overall, these developments are highly positive from a long-term perspective, strengthening the government’s ability to support growth in times of adversity.
The country last month became the sixth-largest market in the MSCI All Country World Investable Market Index (ACWI IMI), surpassing China. The global index tracks capital market performance across the world.
Strong fundamentals helped India pip China in the MSCI Emerging Market (EM) IMI to become the largest weight too. (Agency)
