InvestorQ : What are the benefits of India being included in the global bond indices?
Katherine Gonsalves made post

What are the benefits of India being included in the global bond indices?

rhea Babu answered.
2 months ago

The topic of India being included in the global indices is nothing new. It has been ongoing for the last few years. Last year in October 2021, Morgan Stanley had issued a special report indicting that Indian bonds could be included in the JP Morgan Global Bond index soon. Not much has moved after that. The latest hint comes from Goldman Sachs. A recent repot by Goldman has highlighted that India will be included in the Global Bond indices by 2023. What does such an inclusion mean and how would it add value to India?

In the first stage, the intent is to get the Indian government securities of G-Secs issued by the central government, included as part of the global bond indices. Bond issues by the government will then become part of JP Morgan Global Bond Index composition. This is not just about improving visibility and profile of Indian debt paper. It is about ensuring steady passive flows into Indian debt. It is estimated conservatively that this inclusion will result in passive debt flows of $30 billion from index funds and ETFs, even assuming 10% weight.

How would these flows materialize. Most ETFs and index funds globally are benchmarked to the JP Morgan Bond Index. India has a $1 trillion actively traded bond market, but it was still not part of the global bond indices. This inclusion will enable these global ETFs and passive funds to get exposure to Indian debt. Indian G-Secs are high on yield and also on positive real returns. For a global investment industry starved for yields, Indian debt can offer the perfect foil to not only diversify but also enhance risk adjusted returns..