India’s inclusion in key government bond index postponed until next year – sources

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NEW DELHI/HONG KONG – India’s long wait to be included in JPMorgan’s influential Emerging Markets Debt Index is set to be pushed back to next year due to a number of issues New Delhi has to deal with. resolve, said four sources familiar with the matter.

Investors had hoped the green light for inclusion might have been given earlier this month after index experts at JPMorgan polled fund managers on their views in August.

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The consultation, along with Russia’s ejection this year from the bank’s widely used GBI-EM index, has led foreign investors to step up their purchases of the growing number of Indian government bonds that no longer cap the price. non-national property.

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Local rules for settling bonds in India, tax complexities and how investors will repatriate their money are among the operational issues that still need to be resolved, said a fund manager at a major global fund.

Index investors tend to favor international settlement platforms such as Euroclear, but India has so far been reluctant to meet some of the criteria for the tax treatment of Belgium-based companies and has instead set its sights on settlement onshore bond, similar to the approach used by China.

“India is trying to include its obligations but operationally it is not ready,” one of the sources said.

The government and the Reserve Bank of India are expected to address some of these issues by the end of 2022, two of the sources said. If resolved, an announcement on India’s inclusion could come early next year, they said. The sources declined to be named as they are not authorized to speak to the media.

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India’s Finance Ministry and JPMorgan did not immediately respond to Reuters’ request for comment.


News of the likely delay in the inclusion process sent the Indian rupee lower, while government benchmark bond yields – which move inversely to price – rose to 7.37% against the low of the day at 7.27%.

Even once New Delhi is given the green light, it will still take time for the inclusion process to kick off due to the scale of the Indian bond market and the preparation time investors will need.

India has been seeking inclusion in global bond indices since 2013, but this ambition has been held back by a number of factors.

JPMorgan, whose GBI-EM index is tracked by around $240 billion of funds globally, only started considering India’s inclusion in its global bond index in 2021, a year after started to include Chinese yuan-denominated debt.

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If successful, India would be the last major emerging market to be added to the JPMorgan index. According to Morgan Stanley, investors could inject $30 billion into the Indian bond market within 10 months and between $170 billion and $250 billion over the next decade.

While most of JPMorgan’s investors favor India’s inclusion in the GBI-EM index, many believe that issues such as investor verification and settlement rules need to be resolved first, have said three of the sources.

India opposes granting capital gains tax exemptions to foreign investors and wants global bond index operators to consider local settlement of its government securities if they are included in their indexes, according to two separate Reuters reports.

« It’s not insurmountable, but at the moment there is no transparency on how a capital gains tax would be calculated or levied, so we wouldn’t be surprised if there was a delay ( in a decision), » said Jennifer Taylor, head of emerging markets debt at State Street. (Reporting by Aftab Ahmed, Selena Li in Hong Kong and Marc Jones in London; Editing by Ana Nicolaci da Costa and Richard Pullin)



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