Bloomberg Postpones Indian Bond Inclusion in Global Index
Bloomberg Index Services Ltd has decided to defer the inclusion of Indian government bonds in its Bloomberg Global Aggregate Index. The company announced this decision on Tuesday, stating it will provide another update by mid-2026. This move represents a setback for India's efforts to attract substantial foreign investment through global bond indices.
Market Reaction and Investor Expectations
Indian bond prices dropped immediately following the announcement. Investors had been anticipating India's inclusion in the index, with expectations of potential inflows ranging between $20 billion and $25 billion over ten months. The key 10-year government bond closed at Rs 98.94, yielding 6.63 percent, after falling to as low as Rs 98.87 with a yield of 6.64 percent. This compares to Monday's closing price of Rs 99.1 and yield of 6.61 percent. Bond prices and yields typically move in opposite directions.
Importance of Global Bond Indices
Inclusion in global bond indices plays a crucial role in attracting passive investment flows. Numerous global funds track the weight assigned to specific countries within these indices and allocate their investments accordingly. Over recent years, Indian government debt has gradually gained recognition in international markets. JPMorgan added India to its emerging market index starting June 2024. Bloomberg followed by including India in its Emerging Market Local Currency Index from January 2025, and FTSE Russell added India to a similar index from September 2025.
India's inclusion in the JPMorgan and Bloomberg emerging market indices previously brought billions of dollars in foreign investment into the Indian government debt market. This increased demand helped lower the interest rates the central government pays on its borrowings.
Current Foreign Investment Landscape
Foreign investment outflows from Indian financial markets have intensified in recent months. The equity market experienced net outflows of Rs 1.66 lakh crore in 2025, following a modest net inflow of Rs 427 crore in 2024. Meanwhile, foreign investment into central government bonds eligible for global bond indices more than halved to Rs 55,590 crore in 2025 from Rs 1.23 lakh crore in 2024. During the first twelve days of 2026, foreign investors purchased Rs 3,415 crore of these eligible bonds.
Foreign Direct Investment has shown some improvement but remains below optimal levels. Net FDI inflows into India amounted to just $959 million in 2024-25. The first eight months of 2025-26 saw net FDI inflows of $6.2 billion, up from $3.3 billion during the same period in the previous fiscal year.
Currency and Reserve Pressures
Weak foreign inflows combined with a rising trade deficit have placed pressure on the rupee's exchange rate. In December, the rupee fell past the 90 and 91 per dollar marks, reaching multiple fresh all-time lows before recovering somewhat in recent weeks. The Reserve Bank of India has intervened heavily by selling foreign currency to support the exchange rate. On Tuesday, the rupee closed at 90.19 per dollar.
According to recent RBI data, India's foreign exchange reserves stood at $686.8 billion as of January 2, representing a decline of $9.8 billion from December 26. This marks the largest weekly fall since November 2024.
Market Infrastructure Concerns
In its statement, Bloomberg Index Services explained that respondents to its consultation process highlighted several operational and market infrastructure considerations requiring further evaluation. These concerns include the current lack of fully automated trading workflows, settlement and repatriation timelines associated with post-trade tax processes, and the complexity and duration of fund registration procedures.
The company noted that while such features are more familiar to investors in emerging market strategies and were deemed acceptable for inclusion in Bloomberg's emerging market indices, the Global Aggregate Index represents a broader and more operationally diverse investor base with different expectations.
Upcoming Bond Supply and Economic Outlook
The Indian debt market faces a significant increase in bond supply from regional governments during the current quarter ending in March. States plan to issue a record amount of debt worth Rs 5 lakh crore to meet their expenditure requirements.
Despite the RBI's commitment to providing liquidity to the banking system through various instruments, bond yields declined by less than 20 basis points in 2025 even though the policy repo rate was cut by 125 basis points to 5.25 percent.
Gaura Sen Gupta, IDFC First Bank's Chief Economist, commented on the situation last week, noting that the rise in supply comes at a time when bank demand remains weak and investor demand from insurance and pension funds appears tentative. She added that support from rate cut expectations will likely diminish as the rate-cutting cycle appears to have concluded.
