Latest news with #SubhadipSircar
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Business Standard
2 days ago
- Business
- Business Standard
$115 bn fund manager ICICI Prudential bets on short-term Indian debt
By Subhadip Sircar and Malavika Kaur Makol India's economic growth is set to accelerate sharply, making the ultra short-end of the debt market the most attractive segment, according to one of the country's top money managers. The recent slowdown was a 'mid-cycle correction', and the central bank's policy support has laid the groundwork for growth to return to its long-term trend, Manish Banthia, chief investment officer of fixed-income at ICICI Prudential Asset Management Co., said in an interview. The outlook is prompting Banthia, whose firm manages about $115 billion in assets, to focus on securities with maturities of up to two years or less. This positions him in contrast to many of his peers, who remain bullish on longer-duration debt, anticipating a more gradual economic recovery. 'This disconnect implies increased risk of a sudden spike in yields at the three-year and longer points as the economy strengthens,' he said. The preference for shorter-dated paper, already a favored play in India's debt market, has been reinforced by the central bank's surprise move last Friday: a bigger-than-expected rate cut and additional liquidity injections. However, the authority also unexpectedly shifted its stance to neutral, warning that it has 'very limited space' left for further easing. Adding to the pressure, Indian bonds sold off on Wednesday on concerns that the central bank could soon begin to withdraw excess liquidity, which has led to the overnight rate falling 20 basis points below the policy rate. Despite this development, a central bank policy reversal might still be six months to a year away, said Banthia. The Reserve Bank of India is unlikely to take measures to bring the overnight rate on par with the policy rate over the next three months, he said. 'The RBI has front-loaded certain policy measures and will now allow them to play out,' Banthia said. 'If the recovery unfolds as they anticipate, they may revisit the liquidity situation in the next calendar year.' India's economy expanded faster than expected in the January-March period, but rising trade uncertainties are weighing on sentiment. Despite this, the central bank maintained its 6.5 per cent growth forecast for the fiscal year to March 2026, which falls short of the government's aspirations for 8 per cent growth. Excerpts from the interview: The 1- to 1.5-year bucket should remain stable until the RBI actually begins hiking rates, while everything beyond that could start moving higher as expectations of policy normalization arise, Banthia said. For duration funds, he prefers the 30-year bond over the 10-year note, as the spread has widened to about 65–70 basis points. The fund is using the 30-year as a defensive bet. The fund remains comfortable holding AA-rated paper, though spreads have compressed significantly from three to six months ago due to surplus liquidity.
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Business Standard
3 days ago
- Business
- Business Standard
RBI winds down offshore currency tool reflecting shift in strategy
By Subhadip Sircar and Bhaskar Dutta India's central bank has scaled back its use of a key tool it deployed last year to counter the strong dollar, according to people familiar with the matter, reflecting a change in the authority's intervention strategy under its new leadership. The Reserve Bank of India 's short dollar positions in the non-deliverable forwards market have fallen sharply to below $5 billion, down from a peak of about $70 billion late last year, the people said, asking not to be named discussing private matters. The central bank had relied heavily on these offshore contracts in 2024 as the dollar surged, driven by a strong US economy and Donald Trump's presidential win. However, this year, the rupee has moved more freely against the greenback, suggesting a shift toward a more hands-off approach to currency management amid global trade uncertainty. 'A central bank cannot keep increasing its short forward book without losing the efficacy of this tool. So to prepare for further volatile events, the RBI will reduce its forward book substantially, if not completely,' said Dhiraj Nim, currency strategist at Australia & New Zealand Banking Group Ltd. An email sent to the RBI seeking comment on the matter didn't immediately receive a response. Using offshore non-deliverable forwards has a number of advantages for central banks, including potentially lower costs and the fact that they don't drain official reserves. That's because the NDF contracts allow the central bank to influence the rupee's levels without actually selling large amounts of dollars. Such interventions can also act as a signal of intent in the spot market, thus boosting the rupee when markets are volatile. The RBI's heavy reliance on the offshore market last year was in sharp contrast to its usual practice of curbing swings in the rupee onshore. Under Governor Sanjay Malhotra, who took office in December, the central bank has brought a large portion of its derivatives intervention to the local market. The reduction in the offshore exposure accounts for most of the recent drop in the RBI's overall forward dollar positions, the people said. As of April, the total forward book — covering both local and offshore markets — stood at about $73 billion, down from a record $88.8 billion in February. More than half the book was within the 3-month to 1-year maturity bucket, indicating a large portion of the book had been brought onshore. However, the RBI isn't worried about the potential drain on its reserves from these dollar sales. 'We are not unduly concerned about that,' Governor Malhotra told reporters on Friday after cutting interest rates for a third straight meeting. 'If there are opportunities, we can build reserves.' India's foreign exchange reserves have rebounded to $692 billion, nearing the record high of $705 billion hit in September. Still, the RBI will likely need to continue adding to its reserves over the next three months to cushion any impact of $14.7 billion in maturing short positions through July, Nomura Holdings Inc. analysts wrote in a note. More than two-thirds of the contracts in the overall forwards book were in the three months to one-year bucket and are unlikely to be rolled over, according to DBS Bank Ltd. The RBI's unexpected decision to cut banks' cash reserve ratio and free up ₹2.5 trillion in liquidity was also aimed at offsetting likely liquidity strain from unwinding short positions, according to the lender. When the RBI sells dollars to banks, it absorbs rupees, potentially tightening financial conditions. 'Liquidity infusion via the CRR cut would also aid this process and ensure it is non-disruptive, while shielding the currency,' said Radhika Rao, senior economist at DBS Bank.
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Business Standard
30-04-2025
- Business
- Business Standard
Indian insurance companies planning $41 bn trade switch to bond forwards
Insurers are in talks with authorities to convert about Rs 3.5 trn ($41 bn) worth of rates derivative contracts into bond forwards. Such contracts offer investors the opportunity to own the securities Bloomberg By Subhadip Sircar and Bhaskar Dutta India's insurance companies are ready to embrace bond forwards agreements that start trading on Friday, the latest step to enhance the liquidity and sophistication of the nation's $1.3 trillion government debt market. Insurance companies are in talks with the authorities to convert about Rs 3.5 trillion ($41 billion) worth of rates derivative contracts into bond forwards, people familiar with the matter said. Such contracts offer investors the opportunity to own the securities, rather than just receiving a cash settlement, giving insurers greater certainty in managing interest rate risks. A key point of discussion between insurers and regulators is the treatment of existing contracts and the complex documentation processes required for the migration, the people said, who declined to be identified as the talks are private. The shift from FRAs, as the rate derivatives are called, will happen gradually, they said. 'Over time, the insurance industry is likely to transition away from FRAs in favor of bond forwards,' said Churchil Bhatt, executive vice president for investments at Kotak Mahindra Life Insurance Co. They provide a hedge against fluctuations in yields and also offer investors the opportunity to get delivery of bonds, he said. The Reserve Bank of India and the Insurance Regulatory and Development Authority of India didn't respond to emails and calls seeking comment. Insurer Demand The bond forward product will cater to the continuing demand for long-term securities from investors like insurance companies, said Gopal Tripathi, head of treasury at Jana Small Finance Bank Ltd. Banks can undertake long positions without any limits and covered short positions through bond forwards only for hedging, the Reserve Bank of India said in its guidelines.
