In a significant move that could reshape India’s financial landscape, FTSE Russell has announced that it will incorporate India’s sovereign bonds into its Emerging Markets Government Bond Index (EMGBI) starting in September 2025. This decision marks a milestone for India’s bond market, following similar decisions by JP Morgan and Bloomberg, which are likely to channel billions of dollars into Indian assets.
The FTSE Russell announcement not only impacts India but also includes the addition of South Korean government bonds to the FTSE World Government Bond Index (WGBI), which will commence in November 2025. South Korea’s bonds are projected to make up approximately 2.22% of the index by market value. This inclusion comes after a two-year observation period on FTSE’s watch list, showcasing the strategic importance of these emerging markets.
India to Feature Prominently in EMGBI
Indian government bonds, which have been under FTSE’s scrutiny for the past three years, are set to represent a notable 9.35% of the EMGBI. The total market value of the index stands at an impressive $4.7 trillion, highlighting India’s growing influence in the global bond market. This inclusion is expected to enhance investor confidence and intrigue towards Indian securities.
Positive Outlook for Indian Bonds
The announced inclusion of Indian bonds is anticipated to provide a substantial boost to the demand for these securities. As noted by Madhavi Arora, chief economist at Emkay Global Financial Services, “The decision is sentiment positive and will structurally strengthen the demand for Indian bonds.” This sentiment reflects the growing appetite among global investors seeking opportunities in emerging markets.
Foreign Inflows Surge into Indian Bonds
Since JPMorgan revealed its plan to add Indian bonds to its Emerging Markets index in September 2023, nearly $18.5 billion has already flowed into Indian bonds from foreign investors. This influx illustrates a strong international interest in Indian sovereign debt, amplifying the need for robust market mechanisms to handle increased foreign participation.
Overcoming Previous Challenges
FTSE had previously postponed the inclusion of Indian bonds during a review in March, primarily due to taxation and settlement issues. However, recent improvements in the accessibility of India’s bond market have facilitated this positive development. This latest announcement follows India’s upcoming inclusion in JPMorgan’s bond index starting in June 2024 and Bloomberg’s index in January 2025, marking a significant leap for India’s presence in global financial indices.
Understanding Government Bonds
Government bonds are critical debt instruments issued by the Central and State Governments of India. These bonds are typically issued during periods of liquidity crises when the government requires funds for essential infrastructure development and public projects. They serve as a crucial element in funding the growth and stability of the economy, providing both a safe investment option and a reliable source of income for the government.
(With Inputs from Reuters)
