Investors in India may turn to dividend-yielding stocks or physical assets such as gold and property as excess liquidity drives real interest rates into a negative zone for the first time since 2013, according to Jefferies India Pvt.

Low yields and uncertain growth could drive outperformance of sustainable high-yielding stocks, Mumbai-based analysts Mahesh Nandurkar and Abhinav Sinha wrote in a note to clients.

Efforts by the Reserve Bank of India to lower borrowing costs by purchasing bonds in the open market and via the use of non-conventional tools such as the U.S. Federal Reserve-style Operation Twist may help pull down the 10-year benchmark yield to below 5.5 per cent, the note said. With consumer price inflation estimated at 5 per cent, the real interest rate -- or gap between one-year government paper and inflation -- is minus 1.3 per cent, Jefferies estimates.

Software exporters, consumer-related and state-run companies offer the opportunity for dividend income, the analysts said, while the appeal of physical assets will depend on how long real rates remain negative.

The brokerages’ top equity picks include Tata Consultancy Services Ltd., Infosys Ltd., ITC Ltd., NTPC Ltd., Bharat Electronics Ltd., Container Corp. of India Ltd. and Mahanagar Gas Ltd.

Indian residential property cycle has also seen subdued pricing for about seven years now, coinciding with the previous times of negative real rates. If the current negative real rates sustain, property markets can bottom out, the note said.

The yield on the most-traded 6.45 per cent 2029 bonds was at 5.97 per cent on Friday, and that on 5.79 per cent 2030 debt was at 5.87 per cent.

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