Salient to Investors:

Nomura said:

  • The Reserve Bank of India’s surprise policy reversal and the first government debt-sale failures in 10 months risk plans to cut the budget deficit.
  • Vivek Rajpal at Nomura said India is expanding at the slowest pace in a decade and tightening by the RBI will cool growth and strain public finances – tight liquidity and low growth will persist.
  • Cut its growth estimate for India to 5 percent in the current financial year, matching last year’s decade-low.
  • India spends 35 percent of revenue servicing its debt.
  • The Food Securities Bill may boost food subsidies to as much 1.2 percent of GDP annually from 0.8 percent.

Dariusz Kowalczyk at Credit Agricole CIB said the rise in rates is negative in terms of debt-servicing costs and the fiscal outlook, and the price the government is paying for stabilization of the rupee is very severe.

Richard Iley at BNP Paribas said these measures necessarily intensify downside risks facing the economy, and unless they are temporary, they risk backfiring.

Moody’s said the RBI’s steps to bolster the rupee will negatively affect growth if high market rates persist

Radhika Rao at DBS said the finance minister has always wanted a more accommodative monetary policy as opposed to a more cautious RBI.

N.S. Venkatesh at IDBI said Indian bonds offer good value, and the 10-yr sovereign bond offers 5.61% over similar-maturity US Treasuries and may yield 7.90 percent in 10 days.

Sanjay Mathur at RBS said Indian bonds offer good value, and says the likely stabilization of the rupee means the RBI could start lowering the policy rate possibly from September Mathur says bond yields are set to moderate, a slow but rewarding process.

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