By Ira Dugal, Editor Financial News, with global Reuters staff |
|
|
From the United States to Britain to Japan, bond buyers in many major economies are on edge, bidding up yields, and with them the financing costs for companies borrowing in their currencies. But that turmoil, triggered by concerns over inflation and government finances, has largely spared the Indian market, where domestic investors are flush with cash and eager to buy bonds. What's driving that divergence, and can it last? That's the focus of our analysis this week. And corporate earnings recovered in the January-March quarter, signalling a rebound in economic growth. Scroll down to our 'Market Matters' section for more on that. |
|
|
A man walks past a display of the Rupee logo and Indian coins outside the Reserve Bank of India (RBI) headquarters in Mumbai, India, April 9, 2025. REUTERS/Francis Mascarenhas/File Photo |
Indian bond markets have defied the recent global rise in yields, bolstered by relatively tame inflation and easier central bank policies that have brought down borrowing costs in the world's fifth-largest economy. India's 10-year bond yield, now around 6.2%, fell 42 basis points last year and is down another 56 bps so far in 2025, while the U.S. 10-year yield is up 55 bps since the start of last year. That has narrowed the spread with India's benchmark to 170 bps, a two-decade low and down by nearly half since January 2024. Read here to understand the recent rise in global bond yields. This graphics-based piece explains how India is charting a different path. A principal source of comfort for the domestic bond markets has been the Reserve Bank of India's change of heart in favour of monetary easing. This year it has delivered two interest rate cuts and, crucially, a flood of liquidity into the banking system. This shift has brought down interest rates in the market and allowed corporate borrowers to raise shorter-term funds and refinance debt at lower costs. That, in turn, has helped to boost India's economic growth to an estimated 6.7% for the January-March quarter, according to a Reuters poll. The data is due on Friday. Analysts warn, however, that the diverging fortunes of Indian and U.S. market yields could cause its own set of problems. India's differential over developed economies' yields has made its bonds relatively attractive to overseas investors, and a narrowing gap could spur foreign outflows. Another risk, they say, is that the central bank might now turn cautious about the supply of liquidity, to ensure it does not fuel inflation. All this could mean that the best days of India's bond rally are behind it. |
|
|
Drawn by the relative comfort of the domestic markets and attractive interest rates, Indian firms raised 987 billion rupees ($11.68 billion) through bond sales in April, data from information provider Prime Database showed. That was the highest on record for the first month of a financial year. A similar volume can be expected in May, with firms preferring to raise funds locally rather than overseas. Yields on corporate bonds may continue to decline over the next three months as surplus liquidity spurs demand for short-term assets, Devang Shah, head of fixed income at Axis Mutual Fund, wrote in a note last week. The central bank has pumped nearly $100 billion into the banking system since December last year, targeting a liquidity surplus of 1% of deposits. It also transferred a record surplus of 2.7 trillion rupees from its balance sheet to the central government, which will eventually find its way into the economy via government spending and offer a further boost to liquidity. That, together with expectations that the central bank will cut rates at least two more times this year, could push the benchmark bond yield down towards 6% from 6.2% at present, said Citigroup's India economists Samiran Chakraborty and Babar Zaidi. But what's good for domestic corporate borrowers may end up pushing away foreign investors, who sold about $2.4 billion in Indian bonds in April and May. In a report this month, the research unit of rating agency CRISIL attributed that outflow to the narrowing yield spread between Indian and U.S. government bonds. And the central bank, keen to keep its ample liquidity from sparking inflation or aggressive lending, may be about to turn more cautious. The RBI's bias towards easing will likely remain intact but it would want to retain "the flexibility to modulate the magnitude and the timing of these policy steps", said Rahul Bajoria, chief India economist at Bank of America Securities India. Are India's falling bond yields helping to support the economy? Write to me at ira.dugal@thomsonreuters.com.
|
|
|
The Indian and Pakistani militaries have deployed high-end fighter jets, conventional missiles and artillery during decades of clashes, but the four days of fighting in May marked the first time New Delhi and Islamabad utilised unmanned aerial vehicles at scale against each other. The drone battle may mark the beginning of a new kind of arms race in Asia with both India and Pakistan expected to invest large sums in building drone capability. Don't miss this report. |
|
|
In the January-March quarter, a larger percentage of Indian companies beat earnings estimates than in the previous quarter, signalling an improvement in the operating environment for top firms. India's equity benchmark indexes fell into a downtrend in October of last year that lasted until March as earnings growth weakened. Among the top 100 firms by market capitalisation on the NSE, 51% reported better-than-estimated results, according to Bernstein. Morgan Stanley noted broad-based revenue and profit outperformance across key sectors such as communications, healthcare and industrials. Read here to catch up on earnings for the January-March 2025 quarter. |
|
|
A man takes shelter from the rain beside a waterlogged street following heavy rainfall in Mumbai, India, May 26, 2025. REUTERS/Francis Mascarenhas |
Monsoon rains have hit the coast of India's southernmost state of Kerala eight days earlier than usual, marking the earliest arrival in 16 years. Rains also hit the financial capital Mumbai sooner than normal, disrupting daily life and travel. The rains, crucial to India's agricultural output, are expected to allow farmers in the southern and central states to sow summer crops earlier than usual, according to Mumbai-based brokerage Phillip Capital India. |
|
|
This newsletter was edited by Edmund Klamann, Deputy Head, Asia Desk in Singapore. Additional reporting by Dharamraj Dhutia in Mumbai. |
Reuters India File is sent once a week. Think your friend or colleague should know about us? Forward this newsletter to them. They can also sign up here. Want to stop receiving this newsletter? Unsubscribe here. To manage which newsletters you're signed up for, click here. This email includes limited tracking for Reuters to understand whether you've engaged with its contents. For more information on how we process your personal information and your rights, please see our Privacy Statement. Terms & Conditions |
|
|
|
No comments:
Post a Comment