FTSE Russell has placed India on the watchlist for a potential future inclusion in its government bond index. This is a crucial step towards India joining global debt index after missing the bus several times.
FTSE Russell, a leading global multi-asset index, analytics and data provider, announced in its semi-annual country classification review for fixed income and equities that Indian and Saudi Arabian government bond markets have been placed on the watchlist for potential future inclusion in the FTSE Emerging Government Bond Index (EMGBI).
After India's inclusion in the EMGBI, foreign portfolio investors (FPIs) could step up investments in the Government Securities (G-Sec) market. This would help take the pressure off banks in terms of investing in G-Secs and allow them to focus on lending. The latest monthly bulletin by the Reserve Bank of India (RBI) shows that FPIs hold only 2.1 per cent of dated government securities as of December 2020.
Increased participation from FPIs would also the help central government's plan to borrow Rs 12.05 lakh crore in the next financial year.
FTSE Emerging Government Bond Index measures local currency government bonds from 16 countries, "providing abroad benchmark for portfolio managers looking for a measure of sovereign emerging markets," as per FTSE Russell. These countries include Brazil, Chile, China, Colombia, Hungary, Indonesia, Mexico, Malaysia, Peru, Philippines, Poland, Romania, Russia, Thailand, Turkey and South Africa.
To join FTSE EMGBI, a market has to satisfy size and credit criteria. Accessibility of bonds and markets and replicability of returns are additional requirements for this. After a market meets these criteria, it is announced that the said market has been included in the EMGBI. If it continues to meet three criteria for three months in a row then the market would join EMGBI at the end of the three months that follow.
The outstanding amount of a market's eligible issues must total at least $10 billion for it to be considered eligible for inclusion in EMGBI. To continue being eligible for the index, a market must maintain at least half the entry-level market size criteria.