Indian bond market anticipate below-$5 billion inflow following Bloomberg inclusion

Indian bonds in focus: Participants in the Indian government bond market expressed expectations of inflows amounting to less than $5 billion following the recent inclusion in the Bloomberg Index Services. 

The inclusion, effective January 31, 2025, encompasses 34 Indian government bonds eligible for investment via the country's fully accessible route (FAR) in the Emerging Market Local Currency Index (EMLC).

Axis Bank predicts inflows ranging from $1 to $2 billion, considering the $10-$20 billion worth of bonds benchmarked to the Bloomberg EMLC index. 

Neelkanth Mishra, Chief Economist at Axis Bank, stressed that increased acceptance from benchmark providers could lead to greater allocation from pension funds and endowments.

Consequently, the estimated overall inflow ranges between $2 billion to $5 billion.

Market reactions to the news have been subdued, as the inclusion was already factored into prices. 

Additionally, the expected inflows are significantly smaller compared to the $25 billion-$30 billion anticipated from Indian bond inclusion in JPMorgan's index. VRC Reddy, Treasury Head at Karur Vysya Bank, forecasts inflows around $3 billion to $4 billion, reflecting a limited positive reaction.

The Indian benchmark bond yield has remained stable at around 7.05 per cent in recent sessions, with little anticipated easing in the near term. 

Madhavi Arora, Lead Economist at brokerage Emkay Global, suggests that inclusion in the larger Bloomberg Global Aggregate Index may be delayed until 2025. She expects inflows of approximately $1 billion to $2 billion.

Arora stresses upon the positive macro impact of global bond index inclusions, anticipating a reduction in India's risk premia and cost of funding across curves. 

The development could aid India in financing its fiscal and current account deficit, potentially triggering positive externalities.

(With Reuters Inputs)