India will be added to the watch list for potential inclusion in the FTSE Emerging Government Bond Index (EMGBI), according to FTSE Russell.
FTSE Russell, which is a leading global multi-asset index, analytics and data provider, announced this in its results of semi-annual country classification review for fixed income and equities.
Investment in G-Secs
Once India becomes part of the EMGBI, foreign portfolio investors (FPIs) could step up investment in the Government Securities (G-Sec) market, say market players.
The possibility of inclusion in EMGBI is good news for the government as its borrowing programme in FY22 is also high at about ₹12.05-lakh crore (₹12.80-lakh crore in FY21). FPI investment in G-Secs could take the pressure off banks to invest in these bonds and allow them to focus on lending.
As per the Reserve Bank of India’s latest monthly bulletin, FPIs owned only 2.10 per cent of the Central government-dated securities as of December-end 2020.
As per FTSE Russell’s December-end 2020 fact sheet, the FTSE EMGBI measures the performance of local currency government bonds from 16 countries, providing abroad benchmark for portfolio managers looking for a measure of sovereign emerging markets.
The 16 countries include Brazil, Chile, China, Colombia, Hungary, Indonesia, Mexico, Malaysia, Peru, Philippines, Poland, Romania, Russia, Thailand, Turkey and South Africa.
To join the EMGBI, a market must satisfy the market size and credit criteria. Accessibility of bonds and markets and replicability of returns are additional requirements.
“Once a market has met all the requirements, an announcement will be made that this market is eligible for inclusion into the EMGBI.
“If it continues to meet all three requirements for three consecutive months after the announcement, the market will join the EMGBI at the end of the three months that follow.”
For entry into EMGBI, the outstanding amount of a market’s eligible issues must total at least $10 billion for the market to be considered eligible for inclusion.
To remain eligible for the index, a market must maintain a minimum market size of at least half of the entry-level market size criteria.