Category: Bonds

Mixed response from markets as RBI to decide on additional cash reserve ratio today

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Bond markets in India are on edge as they await the Reserve Bank of India’s (RBI) much-anticipated decision on the incremental cash reserve ratio (ICRR), set to be reviewed today (September 8). This newly introduced   ratio has kept banks and bond markets in a state of suspended animation, as its removal could bring significant relief to financial institutions, but the actual outcome remains uncertain.

The RBI introduced the ICRR of 10 percent on deposits collected by banks between May 19 and July 28. The primary rationale cited at the time was to control excess liquidity in the system due to the return of 2000 rupee notes. However, it is widely speculated that the RBI’s true motivation was to counter rising inflation, which had been a growing concern.

Also Read: RBI move may suck more than Rs 1 lakh crore from the banking system

As the RBI’s decision day approaches, market sentiment is divided. A CNBC-TV18 poll revealed that 50 percent of respondents expect the ICRR to be reduced to around 5 percent. A minority, constituting 20 percent, hopes for a complete removal, while another 30 percent anticipate that it will be retained in full.

Also Read | RBI MPC Meet 2023: Banks should park more money under cash reserve ratio to reduce liquidity: Shaktikanta Das

RBI’s liquidity tightening measures have generated uncertainty in the financial landscape. The central bank initially drained approximately Rs 1.1 lakh crore from the system, resulting in a liquidity deficit. However, subsequent government spending has led to a surplus liquidity of about Rs 80,000 crore to Rs 1.5 lakh crore.

The looming challenge for RBI is whether to continue with liquidity tightening. On September 15, advanced tax payments will naturally tighten liquidity. This has led to debates within the financial community about the necessity of additional tightening measures.

Watch: Samiran Chakraborty, Chief Economist-India at Citi and A Prasanna, Chief Economist at ICICI Securities-Primary Dealership in interaction with CNBC-TV18 on ICRR & liquidity in banking system

According to Latha Venkatesh of CNBC-TV18, the RBI is inclined towards removing the ICRR. It was originally designed for temporary liquidity management and may no longer be suitable for the current economic conditions. Instead, the RBI might adopt a more flexible approach, employing a variable rate reverse repo (VRRR) during periods of excess liquidity and a variable rate repo during times of liquidity deficits. Additionally, the RBI’s sale of dollars to counter the weakening rupee could absorb excess liquidity.

For more details, watch the accompanying video

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Bottomline | It’s time to SIP on yields

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US hedge fund manager Bill Ackman pointed out last week that he expects inflation to stay elevated and the 30-year treasury yield to jump sharply to 5.5 percent. This should be seen in the context of the inverted yield curve in the US where short-term yields are higher than long-term rates—in contrast to financial wisdom that calls for long-term paper to offer a higher yield.

Soon after, in a separate conversation, the legendary investor oft referred to as the Sage of Omaha, Warren Buffett told CNBC in the context of Fitch’s rating downgrade of the US: “Berkshire bought $10 billion in US Treasuries last Monday. We bought $10 billion in Treasuries this Monday. And the only question for next Monday is whether we will buy $10 billion in 3 months or 6 months.”

He added: “There are some things people shouldn’t worry about. This is one.”

While Ackman and Buffett commented on US treasuries in different contexts, there was a clear message that can be inferred from both: US short-term yields are very attractive, and this makes treasuries a good place to park short-term money. This essence was summed up by Tesla and X’s Elon Musk who called investment in short-term treasury bills a: “no-brainer”.

So, should you be buying short-term bonds in India? Not really. But you could look to start investing in bonds. Before we get to why, let’s look at why the US and Indian bond market positions are different.

YIELD CURVE DISCONNECT

In the US today, a short-term 1-month treasury yields 5.38 percent, but a 30-year government bond offers only 4.2 percent.

Source: Investing.com

This defies conventional logic, which requires a longer-term paper to offer a higher yield as the investor is taking a bigger risk by investing money for such a long period over which many things can change that could significantly impact her real returns. It is a reversal of this inverted yield structure that Ackman is betting on. He says he is short on 30-year US treasuries both as a hedge and a standalone bet. He adds: “There are few macro investments that still offer reasonably probable asymmetric payoffs and this is one of them”.

In contrast, the Indian bond yield curve is not inverted. Suggesting no such risk of a big reset in long-term yields and offering a rational investment option to investors. In India, while three-month paper yields 6.7 percent, a 10-year bond returns 7.2 percent, and 40-year paper offers a still higher 7.4 percent.

Source: Investing.com

TIME TO SIP ON BONDS

While the common narrative is “higher for longer” on interest rates in the US, which will eventually drive actions in most other economies, most don’t expect interest rates to climb much further from here. Given this, this may be a good time to invest in government bonds.

But should you go all in right now? Perhaps not. Data we studied on the trajectory of 10-year government security (g-sec) yields since 1998 shows that the median yield has been 7.6 percent and the average 7.9 percent over the period. Even for the past 20 years, the median and average have been 7.4 percent and 7.3 percent, while over the past 10 years the median and average were 7.3 percent and 7.25 percent. The high and low yields in the past 10 years have been over 9 percent and near 5.8 percent.

So, at 7.2 percent we are near the mean. And given how uncertain the times are, it pays not to bet against some more rate hikes. Hence, starting a SIP with a fixed tenure of about 12 months may not be a bad option to capture the high yields. But given that bond markets are tricky, and you need to be nimble to manage duration to eke out the best returns, it helps to rely on professional managers to do this for you.

And while bond funds could also be a good option for higher-risk appetite investors, one would suggest the near risk-free government paper-focused gilt funds as a good option for the uninitiated. The most pragmatic approach to such investments is to select the top-rated mutual fund schemes by independent rankers like Morningstar and CRISIL.

Below is a list of 10 schemes listed by Morning Star in the category along with the returns they have delivered over various time frames.

Source: Morningstar (As on Aug 06, 2023)

To illustrate the outcome of an SIP-based approach, the following data for ICICI Pru Gilt Fund (Direct) Growth plan offers a perspective.

Source: Moneycontrol (NAV as of August 4, 2023)

Here it must be noted, that unlike equities, long-term SIPs in bonds may not be the right strategy. You should try to invest when the yields are high and avoid such instruments when yields are low. Hence limit your SIP period to a specific timeframe, aimed at capturing the higher yields. Don’t continue investing when yields fall. That is the time to take some profits.

Happy investing!

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Spread between bond yield and earnings yield widen as stocks get more costly

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The spread between bond yield and earnings yield has widened to the highest level since February, suggesting that the bond is becoming more attractive to investors, which normally accompanies with fewer risks.

A sharp rally in domestic stocks has taken the valuation of Nifty50 to 18.7 times of its one-year forward earnings, which is nearly one standard deviation above its long-term average. The benchmark index has surged as much as 15 percent from its March lows whereas the yields on the 10-year benchmark bond surged as much as 18 basis points over the last two months.

While India’s equity valuations versus bonds are still shy of the warning level, our proprietary India Bull-Bear Investor Sentiment Index is now at a 20-month-high 96% bullish reading, observed CLSA in an investor note. The foreign brokerage which has a cautious view on Indian stocks said, “The difference between India’s 10-year yield and 12-month forward consensus earnings yield has risen to 1.7ppts — still below the danger zone of 2.0ppts.”

The brokerage further added that the equity valuations versus debt are much more extended in developed markets like the US, France and the UK.

The measure which shows relative attractiveness of bond over equities has hit 287 basis points (bps) on Thursday, marking the widest gap Since February 1, data sourced from Bloomberg showed.

On the other hand, the yields on 10-year benchmark bond rose four basis points on Thursday to hit a two-and-a-half month high, tracking a sharp spike in US treasury yields after minutes of latest FOMC meeting hinted another rate hike this month. The rise in bond yield along with a fall in earnings yield resulted a widening gap between the two.

Analysts at Goldman Sachs expect moderate returns from Indian equities as it “over-delivered” in Q2 relative to the changes in the macroeconomic environment, suggesting consolidation of gains in the near-term. The foreign brokerage which expects a better performance in Q4 said, “History suggests modest forward returns from current starting level of valuations.”

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Foreigners flock to snap up 18.75% yield on India low-grade bond

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Bonds issued by Indian companies saw their biggest foreign inflow in five years as the nation’s largest ever low-grade local currency debt sale drew a slew of overseas investors attracted by the high yield on offer.

Goswami Infratech Pvt, a Shapoorji Pallonji group company controlled by tycoon Shapoor Mistry, raised Rs 143 billion ($1.7 billion) by selling zero-coupon bonds via private placement on Wednesday, Bloomberg News reported. The yield on the offering was at 18.75 percent.

The overseas interest in the high-yield offering saw foreign funds buy Rs 47.1 billion worth of Indian local company debt on Wednesday, the biggest inflow since 2018. Inflows in the nation’s corporate bond market have been muted with only 15.2 percent of the foreign investor limits having been utilised so far, or around Rs 1 trillion. That is a fraction of what the government debt market has seen with index-eligible bonds — or those bonds that foreigners can buy freely — seeing Rs 245.75 billion of inflows this year.

Also Read: Adani group market capitalization gains 11% in June quarter

Investors in the bonds included Cerberus Capital Capital Management LP, Varde Partners LP and Davidson Kempner Capital Management LP, according to people aware of the developments, but not authorised to speak as the information is private. Emails to Cerberus and Varde were unanswered while Davidson Kempner declined to comment. A spokesperson for Shapoorji Pallonji wasn’t immediately available when reached for comment regarding details about the investors.

The offering comes at a time when investors are gradually turning bullish on India’s credit market as robust growth and improved corporate balance sheets have eased concerns about repayment risks. Also, aiding sentiment is the Indian central bank that has joined most global peers in pausing interest-rate hikes amid slowing inflation.

Amrish Baliga, managing director and head of investment banking at Deutsche Bank, discusses India’s credit markets and where he thinks they’re headed. He speaks on Bloomberg Television.

“Investors have been waiting in the wings for the longest time,” said Amrish Baliga, managing director and head of investment banking at Deutsche Bank AG in Mumbai told Bloomberg Television on Friday. “A trade like this is a complete blow-out in terms of investors across various spectrums whether it is institutional funds, family offices and multilaterals.”

More such issuances are in the pipeline, according to Deutsche, which was one of the arrangers to the sale.

“Investors have been enthused with the yields and collateral package,” Baliga said, referring to an asset that acts as a security for the lender. “It augers very well for India’s credit market.”

Also Read: FTSE to replace HDFC with HDFC Bank post merger; may see $1.3 bn inflows, says Nuvama

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Experts say long-term yields are close to peak and rate cuts may not come soon 

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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With the stock market indices at all time highs, the bond markets have exhibited unusual swings by bond market standards. In March, the 10 year bond yield reached as high as 7.45 percent in India and over 4 percent in the US owing to elevated inflation. But May saw yields falling to below 7 percent in India and below 3.5 percent in the US. Although, June saw a rise in yields on fears that the Federal Reserve is not yet done with rate hikes and the RBI is no where near a cut.

The surge in bank stocks is now replaced by a surge in the NBFCs. The factors that pulled down yields from March to May have been a high demand from insurance companies mid-March onwards. The insurance companies saw huge inflows ahead of Rs 5-lakh premium cap for taxes kicking in. The Debt mutual funds also saw huge March inflows before higher taxes kicked in from April 1.

The factors that pushed India yields higher in June are fears of Consumer Price Index (CPI) rising if monsoons are sub-par due to El Nino, RBI hawkishness in June policy, US yields rose in June after Fed indicated likely two more hikes, etc. Further, the demand from insurance companies and mutual funds is feared drying up. Also. the supply of bonds in second quarter is seen higher than demand due to fewer bond redemptions.

Ashish Gupta, CIO at Axis Mutual Fund expects a rate cut by end of FY24, but will depend on how much growth slows. He says the pace of rate cuts need to be watched out for. The long-term yields are close to the peak and market has realised that rate cuts will not happen soon.

Gupta adds that bond market players and insurance companies had a spur of inflows due to tax changes. There is some risk to inflation due to El Nino, but is not pessimistic about inflation in India. “RBI has got it right that inflation in India will trend down”.

Axis mutual fund is overweight on NBFCs and says that large banks are trading at moderate valuations. NBFCs end the day in red on June 22.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Sovereign Gold Bond scheme 2023-24 opens for subscription today — should you apply?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Central government, in collaboration with the Reserve Bank of India (RBI), will issue two new tranches of the Sovereign Gold Bonds (SGB) during the first half of the financial year 2023-24. The first tranche will open for subscription on Monday (June 19) and will close on Friday (June 23). The second tranche will be available from September 11-15, 2023.

The issue price for Series-I 2023-24 has been fixed at Rs 5,926 per gram of gold while there is a discount of Rs 50 for those investors who subscribe it online and the payment is made through digital mode.

The central bank has kept the settlement date of the first tranche of SGB scheme 2023-24 Series as June 27, 2023.

Interest rate, tax

The interest on SGBs will be paid at a fixed rate of 2.50 percent a year, payable semi-annually on the nominal value. The interest shall be paid in half-yearly installments, with the final interest payable along with the principle at maturity.

Under the rules of the Income-tax Act of 1961 (43 of 1961), the interest on the Gold Bond is taxable. The capital gains tax on redemption of these bonds to a person is waived. Long-term capital gains deriving from the transfer of a bond will be eligible for indexation benefits.

Should you invest?

“SGBs have become available for investment at a very good time. The outlook of gold is bullish for next few years due to expected weakening of US Dollar which has negative correlation with Gold. Gold appreciates when US Dollar weakens. This has already been playing out since October 2022 and the trend is expected to continue in near future. Also, central bank of emerging countries have been diversifying their reserves from US Dollar and have been buying Gold. This momentum of buying Gold by central banks have become stronger after Ukraine and Russia War,” said Dr Mukesh Jindal, Co-Founder of Alpha Capital.

“Investors may consider deploying 5 percent of their portfolio in SGBs. If they are very bullish then then may consider increasing the allocation to 10 percent,” Jindal added.

SGBs remain the best way to take exposure to gold due to additional 2.5 percent per annum interest and no capital gains tax. There are no annual recurring expenses while capital gains arising on redemption of the sovereign gold bond scheme would be exempt from tax, said analysts at ICICI Direct.

“If these bonds are sold in the secondary market before maturity, capital gains arising on such transaction will taxed 20 percent with indexation if sold on or after three years and would be subject to marginal tax rate if sold before three years,” the note stated.

The popularity of SGB has gained significant prominence in the last few years as investors gained confidence on the ease of investing and additional interest, which SGBs offer.

“The discount of Rs 50 per gram will be available for investors applying online and making payment using digital modes. Investors will get additional interest at the rate of 2.50 percent per annum on the nominal amount. They will continue to have full exposure to gold prices to the extent of amount deposited,” the brokerage noted.

Nish Bhatt, Founder & CEO at Millwood Kane International said: “Investment in SGBs has helped the RBI raise over Rs 30,000 crore since its inception in November 2015. Investment in paper, digital gold provides high liquidity, eliminates storage costs, and is easier to sell than physical gold. Investment in SGBs comes with an interest coupon payable semi-annually. Gold prices have gained 18 percent in FY23, around 8 percent this year. Also, SGB has posted double-digit gains since its inception in 2015.”

Lock-in period and tenor

SGBs have a maturity of eight years, but exit options are available in the fifth, sixth, and seventh years, which are exercised on the interest payment dates. And the interest rate, which has been constant since its inception, is 2.5 percent.

Who can invest

The Gold Bonds issued under this scheme can be purchased by a Trust, Hindu Undivided Families (HUFs), Charitable Institution, Universities, or an individual resident in India, in his role as such individual, or on behalf of a minor child, or jointly with any other persons

Where can investors buy SGB?

Gold Bonds will be sold through following channels —

1. Scheduled Commercial banks (except Small Finance Banks, Payment Banks and Regional Rural Banks), Stock Holding Corporation of India Limited (SHCIL),
2. Clearing Corporation of India Limited (CCIL),
3. Designated post offices (as may be notified) and
4. Recognised stock exchanges either directly or through agents.

Also, payment to buy SGB can be made in cash up to Rs 20, 000 for higher amounts in draft, cheque or electronic banking.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Fairfax-backed IIFL Finance to raise up to Rs 1,500 crore via NCDs, offer up to 9% yield

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Fairfax-backed IIFL Finance Ltd on Tuesday, June 6, said it will open a public issue of secured bonds on June 9, 2023, to raise up to Rs 1,500 crore, for the purpose of business growth and capital augmentation.

The bonds offer up to 9 percent yield and a high degree of safety, it said.

The company said it will issue secured redeemable non-convertible debentures (NCDs), aggregating to Rs 300 crore, with a green-shoe option to retain over-subscription of up to Rs 1,200 crore (aggregating to a total of Rs 1,500 crore).

The bonds offer an effective yield of 9 percent per annum for a tenure of 60 months. The NCD is available in tenures of 24 months, 36 months, and 60 months. The frequency of interest payment is available on an annual, at-maturity basis and with a monthly option for 60-month tenure.

The IIFL bonds would be issued at a face value of Rs 1,000 and the minimum application size is Rs 10,000 across all categories. The public issue opens on June 9, 2023, and closes on June 22, 2023, with an option of early closure. The allotment will be made on a first-come-first-served basis.

The lead managers to the issue are Edelweiss Financial Services Limited, IIFL Securities Ltd, Equirus Capital Private Ltd, and Trust Investment Advisors Private Ltd. The NCDs will be listed on the BSE Ltd and NSE, to provide liquidity to investors.

IIFL Finance’s group CFO Kapish Jain said the funds raised will be used to meet the credit needs of more such customers and accelerate our digital process transformation to enable a frictionless experience.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Experts share insights on potential of Indian bond market for investors

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As the US Federal Reserve signalled a potential end to interest rate hikes, the question arises, will interest rates in India follow suit? With the Reserve Bank of India (RBI) already on pause, it is worth considering if this spells a potential opportunity for debt fund investors. Suyash Choudhary, Head of Fixed Income at Bandhan Mutual Fund stated that India is currently at the peak of the rate hike cycle and investors should look at bond funds for investment.

“In the last 1.5 years, the bond market has been more volatile than any other asset classes, making it a more attractive option for investors,” he told CNBC-TV18.

“Rate hike expectations globally are now peaking and they have matured. India has compressed its external account very remarkably. So, external imbalances that faced us last year are out and inflation is on a downward trajectory. So, we are at the top of a rate hike cycle. Investors should be looking at quality fixed income, especially in the three to six area in our view. This would curb reinvestment risk as the cycle matures and some modest amount of rate cuts come through even in India, probably over 2024,” he said.

Lakshmi Iyer, CIO (Debt) and Head of Products at Kotak Mahindra Asset Management stated that the momentum in the Indian bond market seems to be sustaining, with yields coming closer to 7 percent mark.

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Iyer is not rooting for a rate cut and believes that interest rates have plateaued.

On the other hand, Indranil Sengupta from CLSA India believes that the RBI will cut rates by 100 basis points from October 2023 onwards. He is confident that the central bank is looking for a 100 basis point rate cut from October.

“I am very confident that the RBI will not want to sit at 6.50 percent rate, given where the global economy is and where we are in terms of growth. Inflation will also be coming down in the coming months. We are looking at 100 basis point rate cut,” Sengupta told CNBC-TV18.

Sengupta believes that RBI can easily come down to a 5.5-5.75 percent interest rate. He also pointed out that the rupee appreciated when RBI slashed rates.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

REC lists $750-million green bonds on international stock exchanges at GIFT City

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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State-owned REC Ltd on Wednesday listed its green bonds worth USD 750 million on IFSC stock exchanges at GIFT City in Gujarat.

“REC Ltd has undertaken an exclusive listing of its recently issued green bonds of USD 750 million raised under its Global Medium Term Programme of USD 7 billion at GIFT IFSC stock exchanges in a primary listing ceremony held in GIFT IFSC, Gandhinagar on May 3, 2023,” a company statement said.

The listing ceremony was attended by Injeti Srinivas, Chairman, International Financial Services Centres Authority (IFSCA), as the chief guest in the presence of Vivek Kumar Dewangan, Chairman and Managing Director (CMD), REC, and Ajoy Choudhury, Director (Finance), REC, as well as officials of India INX and NSE IFSC.

Also read: HDFC Mutual Fund files for India’s first Sovereign Green Bond MF

“We are pleased that REC Limited, a Maharatna company, has listed their USD 750 million green bonds exclusively on the IFSC exchanges. With this listing, the cumulative ESG labelled bonds listed on IFSC exchanges has crossed USD 10 billion,” Srinivas said.

V Balasubramaniam, MD and CEO, NSE International Exchange, said, with the listing of its green bonds on NSE International Exchange and India INX at GIFT IFSC, REC’s total listing reached USD 4.75 billion under its USD 7 billion global medium-term note programme.

“This takes total bond issuance on IFSC exchanges to USD 51.7 billion-plus with the total medium-term notes worth over USD 73 billion,” Balasubramaniam said.

Arunkumar Ganesan, Chief Business Operations & Listing, India INX, said in the statement, “This (listing of REC bonds) firmly reinforces India INX and GIFT IFSC as a credible and competitive international jurisdiction for raising capital from global investors.”

Also read: Indian bond yields hit 13-month low boosting borrowing prospects for corporates

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Indian bond yields hit 13-month low boosting borrowing prospects for corporates

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Indian bond yields have seen a sharp fall this week with yields reaching the lowest point in 13 months. Although yields had been declining after the monetary policy on April 8th, the pace of the decrease has intensified recently, indicating a covert rally.

In fact, the decline over the last two days is eight basis points, but it is 20 basis points from the policy day and 40 basis points from March 1st. This implies that corporations can now borrow from the bond market at a half-percentage-point lower rate. It is noteworthy that the current yield is the lowest since April 8th of the previous year, which is a significant development.

The fall in bond yields can be attributed to various factors, including the recent drop in US yields, which have decreased by 3.50 percent in the past month. Furthermore, the anticipation that both the Reserve Bank of India (RBI) and the Federal Reserve will cease rate hikes, as well as the possibility of a US recession slowdown, has led to a decrease in crude oil prices, which currently stand at 75. As a result, this decrease may eventually be passed on to consumers.

However, the primary reason for the decline is the increased number of buyers in the market. The major purchasers include the HDFC twins, HDFC Bank, and HDFC, which are required to comply with the statutory liquidity ratio (SLR) at 22 percent for the combined balance sheet on the day of the merger, which is expected to occur in June or July. Consequently, these two entities have made significant purchases, with 18 percent of the new HDFC balance sheet being devoted to a sizable sum of money.

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Insurance companies have also emerged as significant buyers in the market. Following the budget announcement that tax benefits will not be extended to policies with premiums over 5 lakh, many high net worth individuals purchased such policies, generating a large amount of money. To invest this money in bonds over time, insurance companies entered into forward rate agreements (FRAs) with banks, who in turn warehoused these bonds for subsequent years. This led to a significant amount of buying in the market, contributing to the almost half a percent drop in yields and resulting in a reduction in the cost of capital.

While the cost of capital has decreased, it remains unclear how long this trend will persist. According to dealers, there could be a temporary dip below 7 percent, with trading hovering around 6.9 percent. However, as the Indian government continues to hold weekly auctions, the floor will likely stabilize at around 7 percent.

Nevertheless, there is always the possibility of unforeseen events, such as India’s inclusion in the bond index, that could impact the market. Despite this uncertainty, the sudden drop in the cost of capital is expected to have positive implications for growth.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow