Bloomberg Index Services has once again deferred the inclusion of Indian sovereign bonds in its Global Aggregate Index, citing the need for further evaluation of operational and market infrastructure. This decision, announced on Friday, could lead to an immediate rise in sovereign bond yields, surprising investors who were anticipating increased foreign capital inflow.
The inclusion of Indian government bonds in the Bloomberg Global Aggregate Index was highly anticipated, with estimates of inflows ranging from $10-15 billion during the phase-in window. The market was buoyed by expectations, driven by coordinated measures from the Indian government and monetary authorities, such as tax exemptions on capital gains and interest income, and the expansion of the investable universe for overseas funds by the Reserve Bank of India.
Bloomberg cited several operational challenges, including the lack of fully automated trading workflows, settlement and repatriation timelines, and the complexity of fund registration procedures as reasons for the deferral. The 10-year bond yield had softened by 26 basis points in June, fueled by record foreign portfolio investments of Rs 55,518 crores, driven by expectations of the index inclusion.
“The market was running on expectations that Indian government bonds will be included in the Bloomberg index.”
Vijay Sharma, Senior Executive Vice-President, PNB Gilts
Yields on the 10-year benchmark government bond closed at 6.83% on Friday, up two basis points from its previous close, with bond dealers expecting yields to trade around 6.90% on Monday. Goldman Sachs had predicted $15 billion in passive inflows following the anticipated inclusion announcement.
Indian bonds are already part of three major emerging-market debt indexes, with the JP Morgan EM index to include them in June 2024, Bloomberg EM index in January 2025, and the FTSE Russel EM index in September 2025. After these inclusions, foreign portfolio investors invested over Rs 22,000 crores in a single month, marking the highest at the time.
Background
The deferral of India's inclusion in the Bloomberg Global Aggregate Index underscores the challenges faced by the Indian financial market infrastructure. Investors and market participants will be closely monitoring any developments or announcements from Bloomberg regarding future evaluations and potential inclusion timelines.
The deferral of India's inclusion in the Bloomberg Global Aggregate Index underscores the challenges faced by the Indian financial market infrastructure. Investors and market participants will be closely monitoring any developments or announcements from Bloomberg regarding future evaluations and potential inclusion timelines.
