New Delhi, January 22, 2025 – The inclusion of Indian government bonds in the Bloomberg Emerging Markets (EM) Index later this month is expected to drive substantial foreign inflows into the country’s fixed-income market. According to Vishal Goenka, Co-Founder of IndiaBonds.com, this development comes at a pivotal time when global monetary policy expectations have shifted significantly.
“India government bonds’ inclusion in the Bloomberg EM Index later this month will get further foreign inflows from global funds,” Goenka noted. “This additional investor base would come at a time when expectations of interest rate cuts in the US have been pared back considerably. Hence, we do not expect any rate cuts in India as well in the near future.”
Since the inclusion of Indian government bonds in the JP Morgan Global Bond Index on June 28, 2024, foreign investments in Fully Accessible Route (FAR) bonds have surged to approximately $7.55 billion as of January 21, 2025. This robust inflow underscores the growing appetite among international investors for Indian fixed-income assets, highlighting the potential for long-term benefits to the domestic bond market.
The upcoming Bloomberg EM Index inclusion is seen as a continuation of this trend, attracting new global funds and adding liquidity to the secondary bond market. “The increasing global focus for Indian bonds is beneficial in the long term as typically investors start with government bonds and then move gradually down the credit curve into corporate bonds,” Goenka explained.
The expected influx of foreign investments is poised to strengthen India’s bond market, enhancing its depth and stability. Analysts believe that greater participation from international investors will not only bolster the government bond segment but also create a ripple effect, fostering growth in corporate bonds and other credit instruments over time.
India’s government bonds have long been viewed as a stable investment vehicle, offering relatively higher yields compared to other emerging markets. The inclusion in global indices like JP Morgan and Bloomberg is expected to elevate the country’s stature as a key destination for global fixed-income investments, increasing visibility and accessibility for foreign funds.
While the potential inflows are a positive development, Goenka cautioned that they are unlikely to result in immediate rate cuts from the Reserve Bank of India (RBI). With US interest rate cuts no longer on the horizon, India’s central bank is also expected to maintain its current monetary stance to manage inflation and ensure economic stability.
The anticipated long-term inflows, however, could play a transformative role in improving liquidity and efficiency in the secondary bond market. As the Indian bond market continues to mature, this enhanced liquidity is likely to benefit issuers and investors alike, creating a more dynamic and resilient financial ecosystem.
With these developments, India is poised to solidify its position as a prominent player in the global bond market, presenting a promising avenue for both institutional and retail investors seeking diversified fixed-income opportunities.