Debt market to remain under pressure in April
GDP forecast is directly proportional to bond and debt market. Since the GoI has lowered its GDP forecast for FY20, it is going to affect debt and bond market, say experts.
The Indian government's decision to lower Gross Domestic Product (GDP) forecast to 7.2 per cent for FY 2019-20 leading to hit on the the Indian bond investment and crude oil prices going up in the global commodity market, will also put the debt market under pressure in April, believe market experts. They said that any further rate cut by the MPC (Monetary Policy Committee) of Reserve Bank of India in June 2019 may have its impact on the Foreign Institutional Investors (FIIs) and they might fish out their money from the bond and equity markets.
Explaining the matter Anuj Gupta, Deputy Vice President — Commodities and Currency at Angel Broking said, "The Indian government has lowered its GDP forecast that has hit the investment into the bond market because GDP growth is directly proportional to the bond market. The debt outlook would also be affected as the global crude oil prices have started to scale further." He added that the FIIs have pumped to the tune of around Rs 34,000 crore into the Indian equity markets and if the RBI further cuts rate in June MPC meeting, it will have a negative impact on the bond and debt market further.
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Suyash Chaudhary, Head – Fixed Income at IDFC AMC said, "In the first monetary policy review of the FY20, the Monetary Policy Committee (MPC) decided to cut repo rate by 25 bps (4:2 majority) while keeping stance neutral (5:1 majority). The Reserve Bank of India (RBI) has cut both its growth and inflation forecast as well. GDP growth forecast for FY 20 has been cut to 7.2 per cent with risks evenly balanced. Given the global and local backdrop, we expect there is more easing in the pipeline. The introduction of the forex swap tool for liquidity has had a very benign effect on short end rates, given that it has caused hedge costs to fall by around 100 bps. The spread between 4 to 5-year corporate bonds to 10 years has now risen to almost 70 bps. Our preference remains for spread assets like SDL and AAA corporate at the 10-year point." He added that spreads against underlying government bonds have shrunk versus what they were in early March citing, "We believe there may be more room to go given the underlying environment and policy thrust on transmission."