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Indian rupee and bond prices gained on Tuesday after consumer price inflation slowed to a 13 month low which eased fears of expected rate hike in the near term. At 9.15am, the home currency was trading at 72.72 a dollar, up 0.24% from its Monday’s close of 72.89. The currency opened at 72.79 a dollar. Rupee, bond prices gains as retail inflation eases to 13-month low The 10-year government bond yield stood at 7.773% from its previous close of 7.804%. Bond yields and prices move in opposite directions. Retail inflation unexpectedly eased in October to 3.31% from 3.7% a month ago on the back of lower prices of pulses, vegetables and sugar while factory output—measured by the index of industrial production (IIP)—decelerated to 4.5% in September from a revised 4.7% in the previous month as manufacturing growth eased. Core inflation rose to an uncomfortably high 6.1% in October, led by services such as health, as well as the impact of commodity prices on the inflation for transport and com

Recently, SEBI has come out with a consultation paper titled “Designing a Framework for Enhanced Market Borrowings by large Corporates”. It is a nudge to corporates to access the bond market rather than rely only on bank funding. It says companies with more than Rs 100 crore in long-term borrowing should raise 25 percent or more of their funds through bond issuance. The objective is, the companies will have a wider funding base, there will be scrutiny by more entities than just lending banks and with more instruments on offer, it will deepen the bond market. Advantages from a broad perspective A delay of even a single day in honouring interest servicing means default tag on the bond and downgrade in credit rating. After a downgrade of credit rating, due to any delay in coupon payment, while it is theoretically possible to come back to the earlier credit rating, it is not easy, and it is time consuming as the default tag stays forever. Things are relatively easier in case of bank loans

The road into food retail business in India is no longer smooth for Amazon, as the government has directed the e-commerce giant not to share any equipment, machinery or warehouses from its current marketplace business for the planned venture, reported The Economic Times. In July last year, the US-based company received government approval to invest in building a full-fledged food retail business and sell food products through its wholly owned subsidiary in India. It had proposed to invest about USD 500 million in the country. Following this, the company was looking to launch its food retail business nationwide and has already started a pilot of it in Pune with restricted selection and coverage, a person familiar with the matter told ET. However, after the direction received, the company has now sought clarification from the department of industrial policy and promotion (DIPP) whether it can share some of the warehouse staff, entry and exit doors at warehouses, barcode machines, trolli

The first Government of India bond auction for 2018-19 sailed through on Friday, and indications are investor appetite is likely to remain healthy. Bond yields are expected to remain benign, and could slide close to 7 per cent in the near term. Market players participated strongly. The reissuance of 10-year paper (7.17 per cent for G-secs maturing in 2028), amounting to Rs 30 billion, received bids of over Rs 120 billion. The Reserve Bank of India (RBI), which conducted the auction, had set the cut-off yield at about 7.15 per cent. Lower market borrowings by the government in the first half of 2018-19 set the positive tone, bond dealers and economists said. The increase in the investment limit in bonds by foreign portfolio investors (FPIs) also aided sentiment. Besides, the RBI’s decision to permit banks to spread provisions for mark-to-market (MTM) losses on investments incurred in the third and fourth quarters of 2017-18 over four quarters gave room to banks to participate in bond

India’s central bank raised limits for overseas investors that could lure $16 billion of additional funds into the nation’s sovereign as well as corporate debt. Foreign investors will be allowed to increase holdings of a sovereign, state and corporate bonds by Rs 1.04 trillion ($16 billion) in the fiscal year to March 2019. Overseas investors can boost holding of central government securities by 0.5 percentage points a year, taking the limit to 5.5 per cent in fiscal year to March 2019 and to 6 per cent in the following 12 month period, the Reserve Bank of India said in a statement on Friday. The central bank set 9 per cent as the limit for foreign investors to own in debt sold by Indian companies. In the past two weeks, the government has trimmed its fiscal first-half borrowing plans to reduce debt supply, and the central bank allowed lenders to spread out bond-trading losses to spur demand. The steps cooled bond yields, which had reached a two-year high to threaten the borrowing pla

Reserve Bank of India has raised the investment limit for foreign portfolio investors (FPI) in Central government securities by 0.5 percent to 5.5 percent of outstanding stock of securities in 2018-19 and 6 percent of outstanding stock of securities in 2019-20. Market experts said that an increase is necessary to make up for a reduction in demand from domestic banks. Karthik Srinivasan, Senior Vice President of ICRA said, “The hike is lower than the market had expected but this will increase some more appetite by foreign investors to buy G-secs and hence help lower bond yields, maybe by 4-5 basis points.” On Friday, the 10-year government securities or government bonds saw yields ending trade at 7.17 percent. The new limits will be applicable with immediate effect, the central bank said. In a report dated March 15, research firm Nomura said that a 1 percent increase in the FPI cap, from 5 to 6 percent would increase the limit by Rs 80,000 crore in absolute terms. In 2017-18, the total

Banks and non-banking finance companies have been the primary source of funding for renewable energy. However, banks have limited appetite for a major role as providers of long term debt for renewable energy projects as they are weighed down by the risk of an asset-liability mismatch. The long-term funds available with insurance and pension funds in India are not adequately channelised to meet the debt requirement of the renewable energy sector due to regulatory restrictions. Thus, the existing traditional financing sources are not sufficient to support capacity addition, and given the huge financial requirement of the renewable energy sector, there is a dire need to identify alternate sources to supplement and widen the channels of renewable sector funding. The introduction of Green Bonds will resolve the issue of funding, which is the reason for delay in these ‘green’ projects, in the evolving renewable energy sector. Green bonds are debt instruments that raise money to fund clean e

The bond market was mired in the longest slump since 1998, one that has stretched for more than six months, according to  Bloomberg . That ended on Tuesday, as sentiment took an about-turn to begin an impressive rally. Bond yields dropped 25 basis points, the biggest single-day fall that even the deluge of demonetization in 2016 couldn’t take credit for. The benchmark 10-year bond is now around 7.37% and trade volumes have jumped. It seems all the government had to do to escape higher cost of borrowing was nod to everything that the bond market wanted. So for the first time in a decade, the government will borrow only 48% of its full-year borrowing in the first six months. It will issue floating rate bonds, and borrow more through short-term bonds, thereby making it easier for investors to manage treasury. Voila, public sector banks which had forsaken the bond market are now back, sparking up trade volume. They will be the biggest beneficiaries of the rally. Many of these lenders will

Bond dealers were in for a surprise as the government on Monday moved to ease pressure on the market considerably by reducing the first-half borrowing programme to 47.5 per cent of the total budgeted borrowing, against the normal practice of borrowing 60-65 per cent.The Centre said it would borrow Rs 2.88 trillion in April-September 2018-19, against market expectation of Rs 3.3-3.6 trillion. The weekly borrowing size would also be Rs 120 billion, against the usual Rs 150-180 billion, a great relief for the markets.Economic Affairs Secretary Subhash Garg told reporters that the government would draw an additional Rs 250 billion from the National Small Savings Fund (NSSF) to finance the fiscal deficit for 2018-19. As against an earlier estimate of Rs 750 billion, now Rs 1 trillion will be drawn from the NSSF to finance the fiscal deficit.The Centre will also reduce its planned buyback of government securities (G-Secs) by Rs 250 billion. Hence the gross borrowing for the year will be red

Treasury portfolio of banks will get a much-required breather in the fourth quarter as bond prices improve following announcement of the borrowing programme by the government. The government surprised the market by reducing its plans to borrow Rs 2.88 lakh crore during April-September, only 47.5 percent of total budgeted gross borrowing as against 60-65 percent share in the first half of previous years. Indian government bonds or securities rallied with the benchmark 10-year yield falling to its lowest in two months on Tuesday following a surprise cut in the borrowing programme for the fiscal year starting April. The 10-year bond yield dropped to as much as 7.35 percent from 7.62 percent on Monday, lowest since January 29. Bond prices and yields (interest rates) move in the opposite direction. “Yes, we have seen the 10-year bond yields come off by 25-30 bps (basis points or percentage points) to 7.35-7.37 percent, same as the December figure. So to that extent, if the yields stay to e

The government will borrow Rs 2.88 lakh crore or 47 per cent of total budgeted gross borrowing during April-September, the first half of 2018-19. The government and the Reserve Bank of India (RBI) have decided to make the gross borrowing less by Rs 50,000 crore by reducing around Rs 25,000 crore from buyback and the rest from small savings schemes. “The government intends to use larger inflows from small savings schemes to fund its fiscal deficit during the year. The government will borrow Rs 1 lakh crore from NSSF as against budgeted amount of Rs 75,000 crore,” the government said in a release on Monday. The fiscal deficit – a measure of how much the government borrows in a year to meet part of its spending needs – target for 2018-19, however, continues to remain at 3.3 per cent of the GDP, Economic Affairs Secretary Subhash Garg said. In the last five years, the government typically conducted 60-65 per cent of its market borrowing in the first half of the year. In 2017-18, the gover

As part of its regular yearly practice, the government met bond houses on Wednesday to discuss its borrowing calendar for 2018-19. The conditions couldn’t be more unfriendly though. Bond yields have surged around 100 basis points in the last six months, essentially conveying that investors don’t like them any more. It is well known that foreign investors have begun dumping Indian bonds for a month now and even local banks are wary after choking on losses from previous buying binges. Forsaken by the biggest buyers, the bond market has seen trading volume dry up and consequent rising yields have wreaked havoc on many a balance sheet. But who can blame investors for pricing in realities of inflation, a monetary policy poised for tightening and liquidity that is becoming scarcer? In previous episodes, the Reserve Bank of India (RBI) has typically come to the rescue citing liquidity compulsions. The central bank has been willing to shoulder the burden of supply, partly by buying bonds beca

Mumbai:  Public sector banks, especially those under the Reserve Bank of India’s (RBI’s) prompt corrective action (PCA), are likely to recall their risky additional tier-I (AT-1) bonds, a move that could possibly lead to investors taking a hit on their investments, said analysts and bond dealers. AT-1 bonds worth Rs37,600 crore may be prematurely recalled by banks, including those under PCA and those likely to fall under that framework, rating agency Icra said in a note on Tuesday. Bank of Maharashtra will recall Rs1,500 crore of tier-I bonds on 17 March ahead of their call dates in 2020 and 2021, according to a  Bloomberg  report dated 21 February. The lender is among the 11 state-run banks that are under PCA for higher bad loans and negative return of assets. Bank of Maharashtra has recalled these bonds in compliance with all rules, said a senior official of the bank, on the condition of anonymity. Issued under Basel-III capital norms, AT-1 bonds, also known as perpetual bonds, are

It bears repeating that retail inflation is well above the Reserve Bank of India’s (RBI’s) medium-term target of 4% and there is an outside chance it may breach the upper tolerance level of 6% in the coming months. That would seriously imperil RBI’s and the monetary policy committee’s (MPC’s) credibility. History is witness to what loss of credibility can do. But barring Michael Patra, the central bank executive in charge of monetary policy, none from the six-member MPC has said so categorically. To their credit, every member has stressed on the effects of the government’s abandonment of fiscal frugality on inflation. A fiscal deficit target of 3.3% along with the promise of higher minimum support prices and the customs duty hikes will ensure that rising inflationary pressures get entrenched. Also, the fiscal slippage comes at a time when drivers of inflation are on course to put pressure on prices. Global oil prices are rising, the food price fall has reversed and core inflation rema

In the Union Budget 2018, the finance minister proposed to increase the lock-in period of investments in capital gain tax exemption bonds (under section 54EC of the Income Tax Act, 1961) to 5 years. In the Union Budget 2017, the government had said it would introduce more financial instruments to save tax on capital gains. However, instead of new products, the present lock-in period of 3 years for 54EC bonds has been proposed to increase to 5 years. Given that the lock-in period or tenure of an investment plays an important role in deciding whether it makes sense to invest in or not, let’s look at whether a longer lock-in period could deter investors from investing in these bonds to save taxes. Also, if one does not invest in them, what are the other options for planning your capital gains? Capital gain tax exemption bond Long-term capital gains from transfer of capital assets like real estate, jewellery, and bullion—if invested in capital gain bonds specified under section 54EC of th

The bond markets in India have been witnessing significant volatility l ately. The 10-year Gsec yield has risen from the low of 6.37 percent in the month of Jan 2017 to 7.52 percent as of date. By any count, this is a major bear grip on the market. The bond market has been wary on two counts — One is the rising CPI inflation and the second is the slipping fiscal deficit. The CPI inflation has risen from 1.5 percent in June-17 to 5.2 percent in December 2017. This rise is partially on account of the seasonality of food & vegetables. But, a more important contributor of this increase in inflation has been the energy segment. Since June-17, the crude oil has risen by 49 percent and is presently trading at around US$67 per barrel On the other hand, the major taxation changes due to GST; and the impact of demonetisation, may have led to some hiccups in tax collection. That and the need for supporting vital investment in infrastructure and social sector led to marginal slippage in the

US yields have soared to the highest levels in nearly 3 years as investors bet on an accelerating economy and inflation. German 5-year bunds broke above zero for the first time since December 2015. Back home, yields rose to a 2 year high after the Economic Survey hinted at “a pause in general government fiscal consolidation”. In an interview with CNBC-TV18, Ananth Narayan, Market Expert shared his views and readings on the same. We have never had a situation where both bond market and equity markets rally at the same time for a long period of time. At some state, the correlation does break down. We cannot have runaway asset prices in the US with inflation staying low and interest rates staying low forever. I suspect it will be a bit of both, bond sell-off and a stop in the US stock market action, he said. According to him, the global growth outlook has been robust compared to expectations and given this kind of underlying growth, it is very difficult for interest rates to remain low f

Mumbai:  Indian 10-year bond yield dropped most in a year on Monday after the Reserve Bank of India (RBI) scrapped plans to sell bonds worth Rs10,000 crore via open market operations (OMOs). At 11.14am, the 10-year bond yield was trading at 6.905%, down 14.40 basis points, its biggest slide since November 2016, from its previous close of 7.049%. Bond yields and prices move in opposite directions. “We believe the reversal in RBI’s stance is positive for bond yields and one should see bond yields now heading lower from the current elevated levels. Even as this takes out the near-term worry on yields, pick-up in credit growth will put some upward pressure on bond yields in the medium-term,”  Mint  reported on Friday, quoting Bank of Baroda note. The move came after Moody’s Investor Services raised nation’s rating to Baa2, the first upgrade in 14 years, from the lowest investment grade of Baa3 and changed the outlook from stable to positive. “In view of the recent market developments and

India’s benchmark 10-year bond yield rose to its highest in over 13 months as higher-than-expected October inflation dashed rate cut expectations. The 10-year bond yield went up as high as 7.01 percent, the highest since September 29, 2016, after October inflation rose to 3.58 percent as food and fuel prices accelerated. The paper had closed at 6.97 percent on Monday. Traders expect yields to rise further as state-run banks, the usual buyers in the secondary market, sit on heavy losses. “We keep saying that state-run banks will come and buy, but are they mad, can’t they see the realities that those days of bond rally are over now?” said a trader. “They can’t keep adding to speculative risks because even for that they need capital to provide for the mark-to-market losses.” The 10-year paper has risen by 50 basis points since the start of July as concerns over global rate tightening and upside risks to inflation back home surfaced.

Mumbai:  The 10-year bond yield hit over 7% on Tuesday, the first time after 14 months, as retail- and wholesale-based inflation quickened more than estimated, reducing expectation of a rate cut any time soon by the Reserve Bank of India (RBI). At 12.05pm, the 10-year bond yield was at 7.058%, a level last seen on 8 September 2016, compared to its previous close of 6.972%. Bond yields and prices move in opposite directions. Wholesale Price Index-based inflation rose to 3.59% against  Bloomberg ’s estimates of 3.01%. Consumer inflation rose 3.58% in October from a year ago, up from 3.28% in September.  Bloomberg  analysts’ estimated Consumer Price Index-based inflation at 3.43%. Broking firm Nomura Research expected CPI inflation to rise above 4% in November and to stay above the RBI’s target of 4% through 2018. “The likelihood of inflation testing the 4% target by late 2017 and staying above it for rest of FY18 reinforces our expectations that the Reserve Bank of India will remain on