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Why FTSE Ignored India's Bond Market In Latest Update Despite Inclusion In JP Morgan, Bloomberg Indices

In 2021, India was added to the FTSE for reclassification of its Market Accessibility Level from 0 to 1, and consideration for inclusion in the FTSE EMGBI

Global index provider FTSE Russell has deferred the inclusion of India in its Emerging Markets Government Bond Index, saying that the country would stay on its watchlist as certain criteria for inclusion were still not met. South Korea also continues to stay on the watch list for inclusion in the FTSE global bond index.

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Portugal will be added to the key FTSE World Government Bond Index effective November, citing upgrades to its credit rating in recent months, and remove Switzerland from the upgrade watch list.

“India will remain on the FTSE (Fixed Income Country Classification Watch List) for the potential reclassification of its Market Accessibility Level from 0 to 1, and consideration for inclusion in the FTSE EMGBI”, said FTSE Russell in its latest FTSE Fixed Income Country Classification Review published on Wednesday. 

In 2021, India was added to the FTSE for reclassification of its Market Accessibility Level from 0 to 1, and consideration for inclusion in the FTSE EMGBI. This came after India’s move to introduce the Fully Accessible Route (FAR), clearing the path for enhanced FPI flows into the Indian debt market.

In September 2023, India’s inclusion in FTSE EMGBI was last reviewed and the global index provider had decided to defer the inclusion.

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Why FTSE Russell Is Not Including India In Its Government Bond Index?

The global index provider said it will not include India’s government bond index due to taxation, registration, and settlement issues. However, the index provider acknowledged progress in the accessibility of the securities in its March review for the FTSE Emerging Markets Government Bond Index (EMGBI), adding that the bonds will remain on its watch list.

It noted that there continue to be criteria for a Market Accessibility Level of 1 that the Indian market does not satisfy. The criteria include documentary requirements to fulfill the FPI registration, increased regulatory reporting, the inflexible length of the settlement cycle, and the tax clearance process.

FTSE said India has made progress with additional flexibility afforded to custodians relating to margin financing which has now been more widely adopted and has helped improve certain aspects of the trade settlement process.

The index provider said it will continue dialogue with the Reserve Bank of India and seek feedback from a cohort of international investors entering the bond market on the practicalities of their investment experience.

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The development comes after JP Morgan and Bloomberg Index Services announced the inclusion of some Indian government securities in their emerging market indices from June 2024 and January 2025 respectively.

Indian bonds have witnessed foreign inflows of nearly $10 billion over the last six months.

Joining the FTSE index was expected to further increase investments in index-linked funds but market participants did not see such a move in the short term.

According to analysts’ estimates, India’s inclusion in the JPMorgan index will bring in around $23 billion, while the Bloomberg index is likely to attract $3 billion of inflows from index-linked investors.

India has been on the watch list since March 2021, while FTSE postponed the inclusion in its September review, saying areas of improvement highlighted by foreign investors were largely unchanged.

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