“We have gone from being very defensive in August to aggressive now in positioning toward longer bonds and one big factor behind that is a better clarity on the RBI’s intervention plan,” said Pankaj Pathak, fixed income fund manager at Quantum Asset. “The RBI
signaling that they will purchase bonds on weekly basis has given a big comfort,” he said.
Prior to the RBI’s support measures announced on Oct. 9, some money managers were piling into India’s short-tenor debt from bills to credit as concerns over a virus-ravaged economy and record borrowings prompted them to avoid risks.
The pivot from RBI
will help the government, which has said it will sell 1.1 trillion rupees more debt for the fiscal half ending in March. More than 40% of the remaining year’s bond sales will be in 10-year to 14-year maturities.
Expectations for easing inflation are also likely to support longer tenors. RBI Governor Shaktikanta Das said in the policy address that the monetary authority sees the recent surge in inflation as transient.
Yields may soften “once the market comes around to the view that CPI is going to trend lower, and there is stability in terms of market borrowing,” said Amandeep Chopra, head of fixed income at UTI Asset.
However, some investors warn that betting on easing debt supply in India is risky as widening fiscal deficit is a long-term issue.
“We had tactically played a 13-14 year overweight position earlier,” said Suyash Choudhary, head of fixed income at IDFC Asset Management in Mumbai. “However, such a long-duration trade has limited shelf life in a multi-year fiscal stress situation that we are currently in and has to be played opportunistically. We have moved back to our core conviction positions in the 6–8 year segment.”
S&P Global Ratings and Fitch Ratings forecast India’s combined deficit -- federal and state governments -- will widen to about 12% of GDP in the year through March.
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