India's inclusion into key govt. bond index deferred

Indian government bonds will likely only be included in the JPMorgan emerging market global index early next year

Indian government bonds will likely only be included in the JPMorgan emerging market global index early next year as New Delhi still needs to address various operational issues, four sources familiar with the matter said.

Investors had expected a decision on this could come as early as this month when operators meet to review the composition of the index and after Russia's exit earlier this year. The latter led foreign investors to step up purchases of Indian government bonds with no investment cap.

Local bond settlement rules, tax complexities and the way in which investors will repatriate dollars are among the operational issues that still need to be resolved, said a fund manager at a large global fund. Index investors tend to favour international settlement platforms such as Euroclear but India has said it wants to settle bonds onshore, like China.

"India is working to get its bonds included but operationally it is not ready," one of the sources said.

Benchmark 7.26% 2032 bond yields rose to 7.37% from the day's low of 7.27% after the story.

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

India's finance ministry and JPMorgan did not immediately respond to Reuters' request for comment.