FTSE puts Indian govt bonds on watch for possible index inclusion

 The FTSE announcement is an acknowledgment of India's efforts to liberalize its sovereign bond market

FTSE Russell has placed Indian government bonds on the watchlist for possible inclusion in one of its major global debt indexes, a move that may usher billions of dollars of inflows into the securities.

Indian bonds will be considered for addition to the FTSE Emerging Markets Government Bond Index and their market accessibility will be reviewed for reclassification to “1” from “0,” which would put them at the minimum level needed for inclusion, the index provider said. The announcement was part of FTSE’s semi-annual country classification review released Monday.

The announcement will help “ensure greater investment in debt markets and longer-term, it will impose greater fiscal discipline on government finances,” said Sanjay Mathur, chief economist for Asean and India at Australia & New Zealand Banking Group Ltd. in Singapore.

The FTSE announcement is an acknowledgment of India’s efforts to liberalize its sovereign bond market, with the authorities seeking more foreign investment to help finance the nation’s fiscal deficit.

Inclusion in FTSE’s index may attract about $10 billion of inflows into rupee securities, said Dariusz Kowalczyk, a senior emerging-market strategist at Credit Agricole CIB in Hong Kong, adding that this was an initial estimate.

“This was not fully priced in, and often active money front runs passive money, so I think there should be an impact on rupee and government securities today, but nothing major as actual inclusion is probably years away,” he said.