Government securities listing: FTSE Russell to offer India update in March 2022

The global index provider first placed Indian government securities on FTSE Fixed Income Watch List in March 2021 for an upgrade of its market accessibility score. It announced its latest review late Thursday.

FTSE Russell has said it continues to engage with Indian authorities and will provide an update to the market in March 2022, even as it retains the country on its watch list for possible inclusion in its bond index.

The global index provider first placed Indian government securities on FTSE Fixed Income Watch List in March 2021 for an upgrade of its market accessibility score. It announced its latest review late Thursday.

David Sol, managing director (Index Policy) at FTSE Russell, said: “FTSE Russell is…encouraged by India’s progress towards inclusion in mainstream local currency emerging markets indices such as the FTSE EMGBI.”

FTSE Russell has said Saudi Arabia’s sukuk will be added to its widely-tracked local currency Emerging Markets Government Bond Index (EMGBI) from April 2022. Similarly, Kazakhstan’s local currency government bonds will be included in its Frontier Emerging Markets Government Bond Index, effective next April.

India has been planning to list certain categories of government securities on global bond indices, in sync with a Budget announcement in February. Earlier this month, principal economic adviser Sanjeev Sanyal said preparatory work was almost over and some announcement was likely this fiscal.

The government has not budgeted any amount to be raised through this route for this fiscal. As such, robust tax collections and expenditure curbs in the first half have reduced the need for more market borrowing to fund extra spending commitments. However, any funds so raised would proportionately reduce the government’s gross domestic market borrowing from the budgeted `12.05 lakh crore for FY22 and have a benign effect on bond yields.

The benchmark 10-year government bond yield, which had dropped below the 6% mark in early October 2020, started inching up since January 2021 to exceed 6% again on January 27, as supplies of papers outstripped demand. On Friday, it closed at 6.23%.

Moreover, the plan to Indian sovereign bonds in global bond indices is aimed at not just financing a portion of its elevated fiscal deficit in the aftermath of the Covid-19 outbreak but deepening the country’s bond market. Any such move would potentially draw higher foreign flows, as many overseas funds track global indices.

In an interview to FE in late August, chief economic adviser Krishnamurthy V Subramanian said overseas players were apprehensive about the stability of India’s tax regime, thanks to damaging steps like the retrospective tax amendment in 2012. But the fear had been put to rest after the current government recently junked this amendment, he added. Sources had earlier said jittery overseas fund managers wanted India to freeze tax rates on sovereign debt papers after their listing.