INSUBCONTINENT EXCLUSIVE:
By Rahul Satija and Subhadip SircarA liquidity crunch is looming for India, and funding costs could jump for all but the strongest
companies, according to Suyash Choudhary, who foresaw the surge in rates back in 2013.
Indian assets have become less attractive to overseas
funds amid tighter global liquidity, said Choudhary, head of fixed income at IDFC Asset Management Co
To mitigate the risk, he is stuffing his portfolios with sovereign paper and triple-A rated corporate debt, while selling bonds with weaker
Spreads are too thin in India
previous period, as bad loans at state banks curb lending and global funds sell down holdings, according to rating company Crisil Ltd
Investment-grade notes from India has underperformed those from China, and new supply runs the risk of higher pricing as investors have
become more cautious, Citigroup Inc
said this month.
This may be the year when some firms face a shock when refinancing as investors shun illiquid paper, said Choudhary, who
past year, beating 59 per cent of its peers, data compiled by Bloomberg show
The entire bond holding there was in triple A paper such as Rural Electrification Corp Ltd and HDFC Ltd, according to its latest
unsustainable current-account deficit, he moved to cash at the start of 2013
While borrowing costs fell initially, the call presaged the contagion from the taper tantrum that drove the benchmark yield past 9 per cent
and sent the rupee tumbling along with regional currencies.
The rout in local bond prices over the past year on increasing fears of the
government missing its fiscal deficit target, surging crude prices, and a central bank that has started to tighten has given him a sense of
deja vu.
Yields are up 46 basis points so far in 2018, while global funds have net sold $6.3 billion of bonds.
Yet, India is better prepared
than five years ago to endure a shock, Choudhary said
Real yields are much higher, the economy is in better shape, and the central bank has a clear mandate to target inflation, he said.
Besides,
yields may already be at the top-end of their range should the Reserve Bank of India engage in a shallow rate-hike cycle, and replenish
liquidity by more open market bond purchases, he said
The central bank did a third purchase of 100 billion rupees of bonds this week to add to liquidity
