What can bond investors expect after the RBI's foreign capital push? Fixed-income experts weigh in

As the central bank has decided to make long-term bonds accessible to foreign investors while keeping the repo rate unchanged for the time being, fixed-income experts are optimistic about the impact of today's decisions on the bond market. Here's a summary of what some of them said today.

Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said, "By putting new 15-, 30- and 40-year government securities under FAR, RBI makes more long-tenor bonds freely accessible to foreign investors. Further, it will ensure more FPI demand for G-secs, lower long-end yields, lower government borrowing cost, better liquidity in long-tenor bonds, and some support for Rupee. Also, these measures can make India’s case for inclusion in larger Global Bond indices stronger."

"We believe RBI will continue to look through inflation prints before taking a considerate call of a potential rate hike. We continue to believe that growth considerations could trump a more aggressive rate hike cycle as market expectations tend us to believe. We expect a pause in August policy," he added.

Dhawal Dalal, President and CIO, Fixed Income, Edelweiss Mutual Fund, believes the central bank may increase the policy rates going forward and bond investors should wait for it.

"Both GOI and RBI have announced a number of measures to augment much needed capital inflows. This should have a net positive impact on India's FX reserves and investor sentiment in the medium-term. That said, with average CPI expectations being raised, bond market investors will have to brace for a gradual increase in policy rates down the road, in our view," he said.

Murthy Nagarajan, Head of Fixed Income, at Tata Asset Management, said, "With CPI inflation revised higher, we may expect a rate hike in the coming months. However, the bond market has already factored in three rate hikes, with the ten-year yields trading at 7% levels."

According to Nagarajan, the bonds market is expected to trade range-bound in the coming months. However, this can undergo change if crude oil prices trade higher than USD 100 per barrel on a sustained basis.

Currently, the 10-year yield is trading in the band of 6.96% to 6.99% levels as market players expected no repo rate hike by RBI.

Amit Somani, Deputy Head of Fixed Income at Tata Asset Management expects 10-year bonds to trade in 6.85 to 7.15% range.

"With strong measures undertaken for currency stability, we expect market to now stabilize around current levels. Geopolitical risk will continue to drive markets in the foreseeable future. We expect 10-yr G-sec to trade in 6.85% - 7.15% range. Short-term yields are also likely to trade lower from recent higher ranges of 7.80%-90% levels for 9-12 month papers," Somani said.

Aditya Mulki, CEO, at Navi AMC, said, "The meaningful liberalisation of foreign investment limits, extension of the Fully Accessible Route to long-duration bonds, and the concessional forex swap facility for ECBs and FCNR(B) deposits are important measures that indicate the RBI’s intent to deepen India’s capital markets and attract durable long-term foreign flows. This is a constructive medium-term positive for Indian fixed income market.”

Rumki Majumdar, Economist, Deloitte India, said, "The government’s measures to improve foreign investment flows into equities and government securities, address tax-related concerns and ease imports will help increase capital flows into the country, which will boost the momentum of investments that has picked up last year.”