By Dharamraj Dhutia
MUMBAI (Reuters) – Global index provider Russell will postpone India’s inclusion in its government bond index due to taxation, registration and regulation issues, even as two other major index providers have announced their inclusion, he said Thursday.
However, it acknowledged progress in bond accessibility in its March review of the FTSE Emerging Markets Government Bond Index (EMGBI), adding that bonds will remain on its watchlist.
India has made progress with the additional flexibility afforded to custodians in relation to margin financing, which has now been more widely adopted and has helped improve some aspects of the trade settlement process.
However, factors such as “documentary requirements to satisfy foreign portfolio investor registration, increased regulatory reporting, the inflexible length of the settlement cycle and customs clearance process” are hindering the qualification of bonds for the “Market Accessibility Level of 1,” FTSE said.
The index provider said it will continue dialogue with the Reserve Bank of India and seek feedback from a group of international investors entering the bond market on the practical aspects of their investment experience.
The development comes after JPMorgan and Bloomberg Index Services announced the inclusion of some Indian government bonds in their emerging market indices from June 2024 and January 2025 respectively.
Indian bonds have seen foreign inflows of nearly $10 billion in the last six months.
Joining the FTSE index was expected to further boost investment by index funds, although market participants did not see such a move happening immediately.
Analysts have estimated that India’s inclusion in the JPMorgan index will bring in around $23 billion, while the Bloomberg index is expected to attract $3 billion in inflows from index investors.
“The FTSE has stricter criteria and the amount of inflows is also not very large, so the market will not react to this, especially at a time when there are a number of other positive factors,” said VRC Reddy, head of treasury of Karur. Vysya Bank.
India has been on the watchlist since March 2021, while FTSE deferred inclusion in its September review, saying areas for improvement highlighted by foreign investors remained largely unchanged.