New Delhi [India]October 21 (ANI): Indian bond markets continue to show resilience, supported by stable macroeconomic fundamentals and favorable supply-demand dynamics, said Puneet Pal, head of fixed income at PGIM India Mutual Fund.
Pal expects a gradual approach from the Fed to lower interest rates. He said Indian bonds remain a lucrative investment option due to the country’s robust underlying economics, including high real interest rates, which create room for potential rate cuts.
The recent interest rate cut in the US increases the likelihood of similar actions from the Reserve Bank of India (RBI) in the near future.
Bond yields generally anticipate changes in interest rates, making this a strategic time for investors to increase their fixed income allocations during interest rate increases.
PGIM India expects 10-year bond yields to fall to 6.50 percent in the fourth quarter of 2025, while long-term bond yields are expected to decline in the coming quarters.
For medium to long-term investors, dynamic bond funds with a term of 6-7 years and a focus on government bonds offer an attractive risk-reward scenario, while money market funds are recommended for investors with a horizon of 6-12 months.
The Indian bond market remained steady last week despite geopolitical tensions in the Middle East, with traders taking advantage of profit opportunities.
Ten-year Treasury yields closed at 6.79 percent, unchanged from the previous week, while crude oil prices fell nearly 7 percent.
Hopes of an upcoming RBI rate cut have been dampened, especially after the central bank governor termed such a move as premature and risky, emphasizing optimism about growth and the resilience of the economy.
Inflation remains a concern as the Consumer Price Index (CPI) rose to a nine-month high of 5.49 percent, driven by increases in food prices, especially vegetables, edible oils and pulses, pushing market expectations off 5. exceeded 10 percent.
Meanwhile, inflation on the Wholesale Price Index (WPI) was slightly below expectations at 1.84 percent. On the positive side, the trade deficit narrowed from $29.70 billion in August to $20.80 billion in September, thanks to a decline in non-oil imports.
Additional data showed that India’s taxpayer base has grown significantly, increasing 82 percent to 10.40 crore taxpayers between FY15 and FY24.
Direct tax collections in FY24 reached Rs 19.6 lakh crore, up 182 per cent from nearly Rs 7 lakh crore in FY15. It is striking that personal tax collections exceeded corporate tax collections for the second consecutive year.
The government also approved an average increase in Minimum Support Price (MSP) of 4.90 percent for Rabi crops, with barley seeing the highest increase of 7 percent. The increase is in line with last year’s trend and is not expected to put significant pressure on food inflation.
Amid concerns over private credit risks, the RBI banned four non-banking financial companies (NBFCs) from fresh credit sanctions, underscoring the central bank’s commitment to macroeconomic stability.
The Indian rupee (INR) remained under pressure due to the outflow of foreign portfolio investors (FPI) from the stock market, but RBI interventions helped keep it stable at 84.07 against the US dollar. FPI bond outflows from equities exceeded $9 billion this month, while FPI debt inflows were flat.
The money market saw mild pressure, with three-month Certificate of Deposit (CD) rates rising by 3 to 4 basis points, even as interbank liquidity remained comfortable.
Continued cautious sentiment in the bond market and changing global economic conditions indicate a dynamic outlook for investors. (ANI)
