BlackRock has introduced a new fixed income ETF in Europe providing investors with liquid access to Indian government bonds.
India is expected to be admitted into mainstream emerging market government bond indices later this year.
The iShares India INR Govt Bond UCITS ETF (INGB NA) has been listed on Euronext Amsterdam with an expense ratio of 0.35%.
India, currently the fifth-largest economy and one of the world’s fastest-growing emerging markets, enjoys an investment-grade credit rating (currently BBB-) with a bond market characterized by liquidity and transparency.
Historically, though, foreign access to Indian government bonds was limited, a factor contributing to the country’s exclusion from major emerging market bond indices. This changed in 2020 with the introduction of Fully Accessible Route (FAR) bonds, making them available to international investors. FAR bonds now comprise over 20% of India’s $1.1 trillion bond market, encompassing all new issuances of 5, 10, and 30-year bonds.
The opening of India’s bond market has prompted JP Morgan to announce the inclusion of Indian government bonds within its flagship JPMorgan Government Bond Index-Emerging Markets later this year. Similarly, Bloomberg has revealed plans to consider adding Indian government bonds to its premier emerging markets bond index starting September 2024.
These pivotal developments signal increased international investment confidence in India, likely leading to substantial capital inflows. Such endorsements are anticipated to bolster Indian bond prices and stimulate the broader economy, marking a significant shift towards integrating India more deeply into the global financial landscape.
INGB has been developed to offer investors access to Indian government bonds ahead of these positive developments. The ETF is linked to the Bloomberg Indian Government FAR Bond Index which consists of Indian rupee-denominated, fixed-rate, nominal Treasury bonds issued by the Government of India under the Fully Accessible Route.
To be eligible for inclusion in the index, bonds must have a minimum remaining maturity of one year and an issue size of at least INR 10 billion.
The index, which is weighted by market capitalization and rebalanced monthly, was exhibiting a yield to maturity of 7.03% with an effective duration of 6.52 years, as of 7 February 2024.
INGB joins an increasingly crowded field of local currency Indian gilt ETFs available in Europe, a line-up that currently includes the $650 million L&G India INR Government Bond UCITS ETF (TIGR LN), which comes with an expense ratio of 0.39%; the $60m Xtrackers India Government Bond UCITS ETF (XIGB LN), which has an expense ratio of 0.38%; and the recently launched Tabula FTSE Indian Government Bond Short Duration UCITS ETF (TIND LN), which costs 0.39%.