Smaller funds cold to India's inclusion in global bond indices

Mumbai: Reluctance among smaller asset managers and funds in Europe and the US to register themselves locally as foreign portfolio investors (FPI) is the primary reason behind the deferral of India's inclusion in global bond indices, people familiar with the matter told ET.

Such standalone entities, unlike global financial heavyweights familiar with India's capital markets and its regulatory environment, believe the burden of regulatory compliance might outweigh the rewards. If they come to India, they will have to first register as an FPI, a process that itself takes about three to six months.

"Those smaller index constituents are not willing to back India's inclusion in the JPMorgan global bond index, vetoing the proposal in effect," one of the persons cited above told ET.
Heavyweight Investors, Funds Back India Entry
Every constituent's voice counts when such important decisions involving the global indices are taken.

By contrast, heavyweight investors and funds such as PIMCO, the Ashmore Group, Blackrock or Singapore's GIC are said to be in favour of India's inclusion in the indices, a move that could ensure potential inflows of up to$30 billion into Indian fixed-income securities. "For them, it is a way of mitigating concentration risk arising out of China," said a local debt fund manager.

These top global funds have been deploying money in India across asset classes, and are quite familiar with local regulations.

Individual investors could not be contacted for comments immediately. JPMorgan, which runs one of the keenly tracked global indices, declined to comment on the matter.

While Russia's exclusion in the aftermath of Western sanctions has created space for a new entrant into the indices, growing concentration risk involving the Chinese bond markets has helped burnish New Delhi's allure with global investors. Separately, discussions about tax issues and Euroclear settlement are underway, but the major obstacle is in the shape of resistance from small funds that believe the procedural hassles and returns are not commensurate.

Ample Liquidity
India's inclusion is expected to begin through an onshore route where a set of 22 government debt securities will be made available to international bond investors via the Fully Accessible Route, a bespoke window that permits non-residents to invest without any ceiling.