Foreign funds overweight on India bonds

Jan 05, 2016 (LBO) – India has a positive story for bonds with some foreign funds investing in emerging markets overweight on Indian bonds, a report said.

Falling oil prices improved Indian government finances — the country is a net importer of oil — while a stable currency and limited exposure to China supported these investments.

Rupee bonds offered 8.1 percent returns last year, and yields on 10-year bonds are expected to drop 33 basis points to 7.4 percent this year, according to a market survey.

10-year Sri Lanka bonds, in comparison, are quoted at 10.60/11 percent.

“Investors have a positive view on Indian economy,” Manish Wadhawan, managing director and head of fixed income at HSBC India, told the Economic Times.

“Second, among Asian peers, Indian debt is offering highest yields.”

According to Wadhawan, even in a situation where a strong dollar is combined with a weaker yuan, the expectation is the rupee can outdo its rivals.

The rupee was one of the better performers in emerging markets in 2015, with foreigners showing confidence on the back of slowing inflation, modest fiscal and current account deficit and government efforts to push through reforms.

India is expected to cut its repurchase rate by 25 basis points in 2016, after a 125 basis point cut last year, according to a survey of economists, a Bloomberg report said.

Last month, the Reserve Bank of India indicated it may further cut interest rates due to limited inflation risk and will announce its next monetary policy position on February 2.

“India is our favorite destination for fixed income investments in Asia for the moment, with very attractive yields on a risk-adjusted basis,” said Anders Faergemann, sovereign portfolio manager for emerging-markets fixed income in London at PineBridge Investments.

“It appears to be facing the global headwinds better in comparison to other emerging-market peers, is not too dependent on exports and also has quite limited trade linkages with China.”