09 Jan 2024 3 min read

Momentum builds for Indian bonds as Bloomberg confirms inclusion consultation

By Erik Bartolucci

The announcement follows last year's inclusion decision from JPMorgan, and creates important practical considerations for investors.


On 8 January 2024 Bloomberg launched a consultation on adding Indian government bonds (IGBs) to its Bloomberg EM Local Currency Indices.

This latest development builds on September’s long-awaited announcement from JP Morgan, which is adding IGBs to the GBI-EM Global Diversified Index, beginning in June of this year.

Although a final decision has not been made on the Bloomberg index at this point, we believe the consultation is indicative of the positive direction of travel regarding IGB inclusion in major indices.

What could the timeline of events look like from here?

If the consultation passes, we believe the process would be similar to that seen with the JPMorgan announcement.

The first phase could be an official inclusion announcement, which could in itself lead to additional participation in the market.

This would likely be followed by a market preparation phase, during which major investors, index providers and market participants would work together to define the specific criteria for inclusion. In this phase it’s typically necessary for foreign investors to familiarise themselves further with the specific market structure, regulations and trading practices of the added country.

The final phase would then be actual inclusion. If it goes ahead, this could be staggered over a period of months, allowing asset managers to reshape their asset allocations and capital markets to account for additional flows.

If the Bloomberg consultation is passed, inclusion will begin in September of this year, with the weight of IGBs initially set at 20% of its final weight. Each subsequent month would see an additional 20% towards the full weight, meaning IGBs would reach their full index value in January 2025.  

How much of the index could be made up of IGBs?

Bloomberg has stated that the weight of IGBs in the index would be capped at 10%, which is identical to the maximum weight allowed in the JPMorgan index.

Have overseas flows into IGBs risen since index inclusion?

JPMorgan’s IGB announcement in September was followed by a period of elevated flows into the assets from overseas investors.

In October-December, overseas buyers bought $4.2 billion of IGBs, according to Reuters,1 pushing the year-end total to the highest level since 2017.  

ETF versus direct bond investments

As momentum behind IGB inclusion in major indices grows, investors will increasingly need to evaluate how to access this market.

We believe direct investment in IGBs may potentially be attractive for investors seeking to select individual IGBs or with particular views on Indian government rates, and who wish to undertake the operational processes required to access the market directly.

ETFs, meanwhile, could in our view offer a straightforward, cost-effective and potentially tax-efficient option for some investors*:

  • Easy and diversified access to a highly regulated market
  • No need to deal with an additional restricted currency
  • No need to onboard tax advisers and local brokers
  • Potential tax benefits via the reduced withholding tax (WHT) rate applied to Irish-domiciled ETFs (10% WHT vs 20% standard rate)*

India’s time to shine

The energy behind including IGBs in major local currency bond indices reflects international recognition of India’s growing significance as a leading global economy, and could be likely result in more foreign investments in the country’s capital markets.

For investors tracking these indices, we believe careful consideration around how to best access this exposure is essential.

* Tax treatment is dependent on individual circumstances and is subject to change.


1. Source: https://www.reuters.com/markets/rates-bonds/foreign-inflows-into-indian-bonds-spike-6-year-high-2023-before-index-inclusion-2024-01-01/#:~:text=Overseas%20investors%20net%20bought%20government,inflows%20in%20the%20New%20Year

Erik Bartolucci

ETF Capital Markets Specialist

Erik is responsible for supporting LGIM's ETF Capital Markets function. Prior to joining LGIM in May 2021, he worked for Solactive AG in their Equity Product Development team.

Erik holds a Master’s degree in Economics and Finance from LUISS University, and he completed the Quantitative Techniques for Economics and Management program while studying at BI Norwegian Business School and HEC Montréal.

He also holds a Bachelor’s degree in Marketing and Management from University of Bologna and is a CFA charterholder.

Erik Bartolucci