Meghna Barik, Pune
Experts predict that the Reserve Bank of India’s (RBI) shift in policy and the country’s announcement that it will be added to the FTSE Russell Emerging Market Government Bond Index will cause Indian bond yields to further decline in the upcoming months.
Piyush Baranwal, Senior Fund Manager (Fixed Income) at WhiteOak Capital Asset Management, interpreted this shift in posture as the RBI’s initial recognition of the upcoming cycle of rate cuts, which are probably going to occur in the range of 50–75 basis points.
This bodes well for future Indian bond yields as does the announcement that the country has been added to the FTSE Emerging Market Government Bond Index. In its monetary policy announcement on October 9, the RBI kept the policy rate unchanged but changed its position from Withdrawal of Accommodation to Neutral.
The yield on the benchmark 10-year bond fell five basis points to close at 6.678% after this announcement. As the RBI begins its cycle of rate cuts, more declines are expected. On October 10, the yield on the benchmark 10-year bond opened virtually unchanged and by midday it was trading at 6.7636%.
The yield is anticipated to fluctuate between 6 and 6.8 percent in the near future before declining to 6 and 6.7 percent by the end of the fiscal year, according to a report from HDFC Bank.
India will become a part of FTSE Russell’s $4.7 trillion Emerging Markets bond index, as per the official announcements. This will happen in September 2025. Over the course of six months, India’s bonds will be gradually incorporated into the index eventually carrying a weightage of 9.35% second only to China.
With this addition, India has now joined three significant global indices in the last year after Bloomberg and JPMorgan. It is anticipated that incorporating Indian bonds into these international indices will draw a sizable influx of foreign capital.
Around $18.5 billion have already been received in Foreign portfolio investments to India since September 2023. It is believed that India has achieved a significant victory by being included in these indices which will increase foreign exchange reserves, improve inflows into its foreign portfolio and drive down bond rates. The action also shows better access to the market, highlighting India’s rising stature in the international bond market.