When you evaluate the Indian bond market dynamics then you should definitely comprehend that other than domestic or global fundamental factors, presently another factor known as RBI is playing an important role in shaping the whole market perception. With no other choices left, RBI is handling the yields very precisely, one side to support the borrowings of the government and on the other hand to be at par to initiate the borrowings and investment markets. Even after the surge in the yield in the US bonds till March 2021 or a fall in the domestic currency in April 2021, the yield at its benchmark was seen trading in the tight range of 5.95% to 6.15%. The factors that are mentioned below will allow you to rethink the investment strategy in the Indian bond market. So let us have a look at the Indian bond market report.
How Yields Around The Globe Shaping The Ratio
In the United States, the stock market is trading at an all time high, products in this market are into super cycle mode, savings rate and personal income at record levels, inflation splits even at 8 years high, the vaccination drive is being conducted smoothly, and the industry is expected to open soon. But still, the Federal Reserve (FED) aims to stay accommodative and continue to purchase bonds.
Similar to Indian bond market analysis 2020, there are possibilities that on stronger economic recovery, chances of increase in the rate in the minds of the traders and we can witness the yields starting to go uptrend. It is necessary to move higher, or else the inflationary pressure will further deepen the original yield into the negative territory. In the UK and Europe, yields are on their way to move higher. Obviously, to fulfill increasing global yield, the domestic yield requires to be higher to stay competitive and also to attract flows. But the strong intervention of the RBI in the bond space is likely to keep the yields in a narrow arena. And hence the differential among the India-US yield is predicted to go down, which will stop the attraction of flows in the bond market or outflow can be witnessed from the Indian bond market.
What Fall Or Rise Imply To Equity Market
For more than a long period, the Indian equity market shifted in the opposite direction with the bond yield. The reason being, the increase in the bond yields radiates the strategies of investment to the bond market in India 2021 for more returns. And so the global equities that are overvalued should initiate correcting on the shift of flows. This time it looks like a repetition of the Taper Tantrum 2013 incident where the flows had gone back to the treasures of the US from the rising markets. This could be a bad thing for the Indian Rupees and domestic equities. Presently the Indian bond market size is $2.05 trillion.
Important Bond Market Deals To Consider Presently
This list of the bind market deals is based on the market conditions of 01.10.2021. We will be discussing the commercial papers and the non-convertible debentures. Let us have a look at the Indian bond market today.
- HPCL to lift funds through intra-month CPs at a 3.48% coupon
- SAIL to boost funds through intra-month CPs at a 3.48% coupon
- IOC to lift funds through more than one-month CPs at a 3.50% coupon
- BPCL to elevate funds through three-month CPs at a 3.56% coupon
- Godrej Industries to raise funding through three-month CPs at a 3.69% coupon
- Kotak Securities to raise finance through three-month CPs at a 3.95% coupon
- PFC takes Rs 1,988 crore at 6.95% through 10-year bonds
- LIC Housing Fin receives Rs 675 crore at a 5.65% IRR through three-year and seven-month zero-coupon bonds
- Fullerton India Credit receives Rs 50 crore at 7.6% through 10-year minored bonds
- Aditya Birla Finance to elevate Rs 100 crore at 6.45%
- Cholamandalam Invent to lift finance through 10-year subordinated bonds at a 7.9% coupon
- L&T Finance grabs Rs 55 crore at a 5.1% IRR Through 7.7% June ’23 bonds
- Star Health & Allied Insurance takes Rs 400 crore at 8.75% through seven-year subordinated bonds
- CESC takes Rs 400 crore at 5.85% through 5-year bonds
In a nutshell, the Reserve Bank of India (RBI) will attempt to keep the yields as stiff as possible to support higher programs of the government. In a given condition, if RBI wishes to shift hawkish and perform a rate hike then definitely the financial cost of the corporate will increase and if they cannot promise then there will be an increase in the default rate.
Overall in the present gloomy scenario, there will be a certain raise of the credit default swap rates by the hiking rate in India and that would, in turn, hurt the equity. The global restoration in the yield will pressurize the upcoming Indian bond market but without any option to keep a regular check on the yield, making it the main motto of the RBI.