InvestorQ : Is it true that global investors have added Indian debt to their debt indices? Why is this important and why has the government been chasing for this ?
indhumathi Sayani made post

Is it true that global investors have added Indian debt to their debt indices? Why is this important and why has the government been chasing for this ?

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1 week ago
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Just you have equity indices like Nifty and Sensex, there are also indices in debt. Here we are talking about the indices of big index services providers like MSCI, Russell FT and JP Morgan because these are the debt indices that investors use as a benchmark and the big names like Blackrock and Vanguard which largely do index investing in debt use such indices from index service providers to invest in various countries.

Let me clarify that India has not yet been included in any of the indices. But the good news is that FTSE Russell, one of the key index service providers has put India on the watch-list for possible inclusion in its debt market indices. How the Indian government has been lobbying for some time now. Global investments are being driven by passive index investors and that is what is moving equity and debt today. India has been lobbying with the likes of MSCI, JP Morgan and FTSE Russell for the last 2 years for inclusion of Indian G-Secs in global indices.

As of now, MSCI and JPM have not given any commitment. However, FTSE Russell is the first debt index provider to confirm that it was evaluating India for possible inclusion. Consider what could happen if India is included in the global debt indices. In FY21, India attracted $30 billion of FPI flows into equities but in the same year, FPIs pulled out $15 billion from debt. Inclusion in the debt indices can help big debt investors to participate easily in Indian debt.

India is already part of MSCI Emerging Market equity indices but has not been made a part of debt indices. If similar inclusion happens in debt, nearly $10 billion could flow into Indian G-Secs, which will make the overall flow situation comfortable. However, currently, FTSE Russell is evaluating India and Saudi Arabia while JP Morgan has flatly refused to consider Indian debt for inclusion at this point of time.

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