NEW DELHI, Mar 6
Indian government bond market participants said on Wednesday they expect inflows of less than $5 billion from the recent inclusion in the Bloomberg Index Services, which is unlikely to have any material impact on bond yields.
Bloomberg Index Services said on Tuesday it would include 34 Indian government bonds eligible for investment via the country’s fully accessible route (FAR), in its Emerging Market Local Currency Index (EMLC) from Jan. 31, 2025.
Axis Bank expects inflows of $1-$2 billion, citing the $10-$20 billion worth of bonds benchmarked to the Bloomberg EMLC index. “More acceptability from benchmark providers is likely to lead to greater allocation from pension funds, endowments etc. Some flows from unconstrained funds are likely as well. Thus, our overall estimate is at $2 billion to $5 billion,” Neelkanth Mishra, chief economist at Axis Bank said.
Bond yields did not react to the news as the market had already factored it into the prices, and inflows are much smaller compared to the $25 billion-$30 billion expe-cted from the inclusion of Indian bonds in JPMorgan’s index.
“We may not see any incremental positive reaction for now,” said VRC Reddy, treasury head at Karur Vysya Bank, adding that he expects inflows of around $3 billion to $4 billion.
Indian benchmark bond yield has remained around 7.05% for the last few sessions, and is unlikely to ease much in the near term.
Meanwhile, some traders have also pointed out that the inclusion in a much larger Bloomberg Global Aggregate Index may be delayed to 2025, as the index provider may “test waters with this smaller index,” said Madhavi Arora, lead economist at brokerage Emkay Global, who expects inflows of around $1 billion to $2 billion.
“Macro impact of global bond index inclusions is positive overall,” she said, adding that, “structurally, all of this will lower India’s risk premia/cost of funding across curves, and help India finance its fiscal and CAD and could trigger positive externalities.”
