India Sovereign Bonds: Index Inclusion on the Horizon
India’s government has embarked on a strategy of opening up its bond market to foreign investors. Having its sovereign bonds included in benchmark indices is a key pillar of that plan.
The sustained strength of the Indian economy has underpinned the country’s investment grade credit rating and the strong recovery of many sectors to pre-COVID levels should provide comfort for investors.
India is among the last of the large investment grade (IG) rated developing economies whose government bonds are not yet a part of global bond indices (Figure 1). This had been primarily due to limitations imposed by the government on foreign ownership of its domestic debt. Consequently, global fixed income allocations to India are non-core and off-benchmark, resulting in a significant under-representation of Indian debt in investors’ global bond portfolios. Foreign ownership has been capped at 6% of the outstanding debt stock for government securities, although non-domestic ownership has been around just 2–3%.* Similar to China, India’s government has embarked on a strategy to dismantle the barriers to index inclusion, thereby paving the way to attract foreign investors with the aim of having its sovereign bonds included in global indices. Attracting international investors through a clearly communicated and sequenced series of reforms and the easing of restrictions is a key pillar of India’s strategy to deliver on its vision and targets as it increases issuance of government debt to fund its growing economy.
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