"Post the pause, we expect the 10-year yield should ease to the 6.75%-7.00% range by the end of this financial year." India's benchmark 7.26% 2033 bond yield was trading at 7.10%, down 10 basis points (bps) in the last five sessions.
Meanwhile, foreign banks have stepped up their purchases of government bonds, especially after the RBI unexpectedly paused its rate hike cycle on April 6, defying market expectations of a 25 bps increase. "Foreign banks' current purchases could be them building trading positions given the bullish momentum," Agrawal said.
These banks bought bonds worth about 162 billion rupees ($1.98 billion) on a net basis from April 6 to April 26, according to data from Clearing Corp of India. This comes soon after they purchased over 500 billion rupees of bonds from January to March.
India's retail inflation for March eased to 5.66%, and economists expect it to drop below 5% in April. "We are constructive, given the carry and duration return outlook from current levels. The hiking cycle is over, and looking at the local and global backdrop, easing would be the next likely move," Agrawal said.
The RBI is likely to maintain a prolonged pause in interest rates for the current financial year and start cutting only in fiscal year 2025, while the U.S. Federal Reserve may pause after hiking rates one last time next week, he said. Agrawal is also bullish on five-year bonds and expects the yield to ease to 6.50% by end of this year, from the current 6.99%.
A low probability risk event could emerge from
higher-than-expected inflation for a sustained period, which
could result in the RBI raising rates again, the strategist
said.
($1 = 81.6590 Indian rupees)
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Foreign banks' purchase/sale of Indian govt bonds ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Dharamraj Dhutia
Editing by Sonia Cheema)
