Stocks

Indian bonds rally on new foreign investment category; H1 borrowing in focus

Reuters MUMBAI | Updated on March 31, 2020 Published on March 31, 2020

Indian bonds rallied on Tuesday after the Reserve bank of India (RBI) announced a new category for foreign investors, while hopes of a reduction in April’s borrowing or cancellation ahead of the first-half borrowing plan aided sentiment.

The RBI said on Monday it was introducing a new category called the “fully accessible route” for foreign investors, in line with the Budget 2020-21 announcement.

Investors can buy all fresh issuance of 5-, 10- and 30-year bonds starting April 1 under this category, while five existing papers will also become eligible to be held under this, the RBI said.

India may slash or even cancel its planned borrowings from the market for April, looking at its options amid a nationwide lockdown prompted by the coronavirus outbreak, two Finance Ministry sources told Reuters.

The government is due to announce its plan at 6 PM on Tuesday.

The benchmark 10-year bond yield was down 10 basis points on the day at 6.11 per cent, as of around 11:20 AM. Traders said there was a possibility of the bond yield falling to 6 per cent if the April borrowing was indeed cut.

“RBI is becoming innovative and is ready to use new tools and ideas,” said Paresh Nayar, head of fixed income and forex at First Rand Bank, adding that the rally in bonds was on account of the new route and talks of April borrowing being reduced. “It is an unprecedented situation and the RBI/FM are working together to support the financial systems to whatever extent possible,” he added.

The RBI said it can also include new tenors or change those of new securities eligible under FAR route from time to time.

India is scheduled to borrow a gross ₹7,80,000 crore ($103.24 billion) in the financial year of 2021.

Assuming that government sells 15 per cent of FY21 gross borrowing is in the eligible tenors it would amount to debt worth ₹1,20,000 crore. The current outstanding debt worth ₹4,30,000 crore also becomes eligible under the new route from April and that would take total eligible securities to $70 billion.

“If inclusion into global indices is considered, this might translate into a potential weight of 4 per cent-6 per cent on the JPM GBI-EM Index and <1 per cent on the Bloomberg Global aggregate bond index,” DBS Bank economist Radhika Rao said in a note.

“Scope of incremental flows hinge on the broader risk-environment, which at this juncture is tepid... If and when bonds are included in global benchmarks (also factoring in the lead time for due processes), the economy will able to draw in less-volatile and long-term focused funds,” she added.

($1 = ₹75.5500)

Published on March 31, 2020

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.