Bloomberg holds off Indian govt securities' entry into global index

The index provider said recent market reforms need more time to become embedded in market practices before it decides on including Indian government bonds in its flagship index

Bloomberg Index Services Ltd (BISL) on Friday again deferred a decision on including Indian government securities under the fully accessible route (FAR) in the Bloomberg Global Aggregate Index, saying recent market reforms need more time to become embedded in market practice. 

“Feedback received during BISL’s continued engagement indicates that many market participants would like to see these enhancements become more firmly established in day-to-day market practice before a decision is made on index inclusion,” BISL said in a statement. 

The index provider has been reviewing the inclusion of Indian FAR bonds in its flagship Global Aggregate Index, a key benchmark for global investment-grade fixed-income markets. It had postponed a decision in January, citing concerns over settlement processes, post-trade taxation, and market infrastructure. 

 

Since then, India has introduced a series of measures to address those issues. In June, the government exempted eligible foreign investors from taxes on interest income and capital gains on specified government securities as part of efforts to deepen the domestic bond market and attract overseas capital. 

The Reserve Bank of India also widened the FAR by including all new issuances of 15-year, 30-year and 40-year government securities, while easing investment norms for foreign investors. 

The latest deferral may push the benchmark 10-year government bond yield 4-5 basis points higher, traders said, as the market had increasingly priced in the possibility of inclusion. The benchmark 10-year yield settled at 6.83 per cent on Friday. 

“There can be an impact of 4-5 basis points on the benchmark 10-year yield. The market had started pricing in inclusion this time, so there will be some disappointment,” said Vijay Sharma, senior executive vice-president at PNB Gilts. “The message is that progress has been made, but some work is still pending. They are not saying India won’t be included. India is a market they will eventually have to include. For now, though, it looks pushed back to at least January.” 

BISL acknowledged progress in improving foreign investor access to India’s government bond market. It said market participants broadly recognised advances in market accessibility, while noting that electronic trading capabilities have continued to expand, with automated trading platforms supporting execution across many major investor regions. 

The index provider also said the removal of withholding tax and capital gains tax for eligible foreign investors marked a significant improvement in the post-trade framework by reducing operational complexity and improving settlement efficiency.

Even so, market participants flagged lingering operational challenges, particularly around electronic trading infrastructure and foreign investor onboarding. 

“We can see a 4-5 basis point rise in yields on duration papers. There has been integration with CCIL on some platform. Investors have said they have not tested that platform and are not sure whether it works smoothly,” said a market participant, adding, “Secondly, they are not very confident about onboarding counterparties and the KYC process. So investors have asked for more time.” 

BISL said respondents noted that automated trading capabilities had yet to be fully implemented across all major investor regions and sought further evidence that recent reforms would translate into smoother operational workflows, including account opening and onboarding for foreign investors. 

“Given the significance of recent market enhancements and the importance of ensuring they are fully reflected in day-to-day market practice, BISL believes additional time is warranted for these developments to become more firmly established before making a decision,” it said. 

The index provider added that any inclusion decision should be backed not only by regulatory and market structure reforms but also by demonstrated operational efficiency across the range of investors tracking and benchmarking against the index. 

BISL said it will continue engaging with investors, custodians, trading venues, regulators and other market participants, and will provide a further update as the review progresses. 

Why India must wait 

Reforms need time: Recent changes must prove effective in daily market practice 

Operational gaps remain: Trading, settlement and investor onboarding are yet to be fully tested 

Investor confidence: Foreign investors want a longer track record before inclusion