India’s inclusion into key govt bond index pushed back to 2023 – sources

  • Indian government bonds will likely only be included in the JPMorgan emerging market global index early 2023 as New Delhi still needs to address various operational issues, four sources familiar with the matter said.
  • Investors had expected a decision on this could come as early as Sep 22 when operators meet to review the composition of the index and after Russia’s exit earlier in 2022. The latter led foreign investors to step up purchases of Indian government bonds with no investment cap.
  • Local bond settlement rules, tax complexities and the way in which investors will repatriate dollars are among the operational issues that still need to be resolved, said a fund manager at a large global fund.
  • Index investors tend to favour international settlement platforms such as Euroclear but India has said it wants to settle bonds onshore, like China. “India is working to get its bonds included but operationally it is not ready,” one of the sources said.
  • The government and the Reserve Bank of India are expected to sort out some of these issues by the end of 2022, said two of the sources.
  • If resolved, an announcement on India’s inclusion could come early 2023, they said. The sources did not want to be named as they are not allowed to speak to the media.
  • India has sought to be included in global bond indexes since 2013, but that ambition has been held up by a number of factors over the years, and JP Morgan only began considering India’s inclusion in its global bond index in 2021.
  • Its inclusion could result in additional flows of as much as USD30bn within 10 months into the Indian government bond market, Morgan Stanley estimated earlier.
  • India is opposed to providing any capital gains tax waivers to overseas debt investors and wants global bond index operators to consider the local settlement of its government securities if they are included in their indexes, according to two separate Reuters reports.

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