India to join FTSE Russell EMGB index starting September 2025

South Korean bonds to be added to FTSE World Government Bond Index

FTSE Russell on Wednesday said it will add India to its emerging markets government bond index from September 2025.

FTSE Russell is the third index provider to include Indian bonds in its emerging market bond index after JPMorgan and Bloomberg Index Services.

According to FTSE, India's bonds will constitute 9.35 per cent of the index on a market-value weight basis, making it the second-largest component after China.

Bond market participants said the inclusion will not have an immediate effect on the market given that the date of official inclusion is still some time away.

“It will not have any impact because it is too little and too far away,” said Vikas Goel, managing director and chief executive officer, PNB Gilts.

This follows inclusion of local bonds in JP Morgan and Bloomberg Index Services, which could lead to significant inflows into India's government bonds market.

In September 2023, JP Morgan announced the inclusion of India's bonds into the JPMorgan Government Bond Index-Emerging Markets (GBI-EM).

On March 5, Bloomberg Index Services revealed that Indian government bonds would be added to its Emerging Market Local Currency Government Index starting January 31, 2025.

Since JP Morgan's announcement on September 21, 2023, India's debt market has seen net inflows totalling Rs 1.49 trillion.

The JP Morgan bond index inclusion process will be phased over a 10-month period; with 1 per cent weight included each month until March 31, 2025. Indian bonds will have 10 per cent weight, similar to China.

Since the official inclusion on June 28 of the current year, the debt market has witnessed Rs 2, 234 worth net inflows.  A net total of Rs 62,974 crore was infused in government securities designated under the Fully Accessible Route (FAR) during the same period, Clearing Corporation of India (CCIL) data showed.

Indian securities will be incorporated into FTSE's EMGBI after spending the last three years on the index provider's watch list. As of the October 2024 index profiles, 32 Indian governments FAR bonds, denominated in INR and with a combined outstanding par value of $473.8 billion, are projected to be eligible for inclusion in the EMGBI.

Meanwhile, the yield on the benchmark 10-year government bond fell in early trade after FTSE Russell announced that it will include Indian bonds in its indices.

The yields fell further to 6.74 per cent during the day, before settling at 6.77 per cent, post the domestic rate setting panel decision to change the stance to neutral. The benchmark yield had settled at 6.81 per cent on Tuesday.

Market participants said that the yields inched up slightly by the end of the trade as the market perceived the tone of the policy hawkish. However, the benchmark yield is seen moderating by the end of the current financial year once the RBI initiates rate cut.

“The 10-year yield was trading lower at 6.75 per cent post the policy. We expect the 10-year yield to trade in the range of 6.7 per cent -6.8 per cent in the near-term and ease to 6.6 per cent -6.7 per cent by the end of this fiscal year with the start of RBI’s rate cutting cycle and a moderation in US yields (amid Fed rate cuts – 50 bps cut expected in the remainder of 2024 and 5-6 rate cuts expected in 2025),” said HDFC bank in a note. 

The London-based index provider also revealed that South Korean government bonds will be added to the FTSE World Government Bond Index. These bonds constitute 2.22 per cent of the index based on market value, with inclusion from November 2025.