InvestorQ : Is it true that Indian debt is likely to be included in global debt indices and what does that mean?
Anamika Sodhani made post

Is it true that Indian debt is likely to be included in global debt indices and what does that mean?

Angel dcosta answered.
1 year ago

Indian government has been lobbying with some of the biggest debt fund index service providers like JP Morgan and FTSE Russell for a quite some time now so as to get Indian bonds included in these indices. However, due to the lack of capital account convertibility and lack of visibility in terms of liquidity, these bonds did not get too much of attention from the global index providers. Now that finally be about to change.

One of the world’s largest benchmark index service providers, FTSE Russell, has now placed Indian government bonds on the watchlist for possible inclusion in one of its major global debt market indices. That would mean that when all the funds that track that index will automatically have a proportionate allotment to Indian bonds also. As I said even earlier, the Indian government had been lobbying with FTSE Russell for the last few months.

After a detailed consideration, it looks like Indian government debt may finally find a place in the global debt indices. FTSE Russell, which is jointly operated and managed by Financial Times London and Russell Research of UK, is considering Indian government bonds for inclusion in the FTSE Emerging Markets Government Bond Index. One of the basic conditions for such inclusion was for India to liberalize India’s sovereign bond markets.

The big advantage of finding an index inclusion is that passive funds will automatically make allocations to these bonds and as the allocation is increased gradually, it assures more flows into such debt. It is estimated that this move could actually attract $10 billion in debt market investments from foreign portfolio investors. Apart from giving depth and breadth to the markets, it will also help the Indian economy to bridge its fiscal gap.