Indian Bonds rally on RBI windfall, focus now on 10Y issuance: Report

The global financial services major DBS, however, noted that interests in this paper is likely to be lukewarm ahead of the new 10Y issuance in September or October.

Business Standard : The relief rally in Indian bonds on Tuesday was largely owing to the Reserve Bank's decision to transfer a record Rs 1.76 lakh crore dividend and surplus reserves to the government, a DBS report said.

The global financial services major, however, noted that interests in this paper is likely to be lukewarm ahead of the new 10Y issuance in September or October.

"INR bonds rallied on Tuesday, as the RBI plans to transfer dividends/ reserves well in excess of budgeted target and 2-3 times past years' proceeds. This will prove to be a timely fiscal windfall for the government," the DBS report said adding that the next focus will now be on the new 10Y issuance.

"Beyond short-term gyrations in the 10Y yields amid low volumes, interests in this paper is likely to be lukewarm ahead of the new 10Y issuance in September or October," noted Eugene Leow, Rates Strategist, and Radhika Rao, Economist, at DBS Group Research in the report.

Governor Shaktikanta Das-led RBI central board gave its nod for transferring to the government a sum of Rs 1,76,051 crore comprising Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF), the apex bank said in a statement on Monday.

The receipts from the RBI will give a fillip to the government's efforts to boost the economy from a five-year low as well as meet the fiscal deficit target.

Regarding concerns as to how this windfall will be utilised, the report said that most likely it will be used to fund additional spending plans or plug a shortfall in budgeted tax revenues as this "will allow the government to compensate for any slowdown in direct and indirect collections and contain fiscal deterioration".

The report further said that besides RBI dividend contributions, bonds have drawn confidence from last week's sector-specific measures announced by the Indian government.

On August 23, the Indian government announced a raft of measures, including rollback of enhanced super-rich tax on foreign and domestic equity investors, exemption of startups from 'angel tax', a package to address distress in the auto sector and upfront infusion of Rs 70,000 crore to public sector banks, in efforts to boost economic growth from a five-year low.

Anti-patriotic': RSS wing says India must not issue foreign currency bonds

They say it is anti-patriotic as it could create long-term risks for the economy, potentially allowing rich foreign nations and their financial institutions to dictate the country's policies.

An influential Hindu nationalist group close to Prime Minister Narendra Modi's ruling party has demanded his government review its plan to raise money by selling foreign currency bonds.

They say it is anti-patriotic as it could create long-term risks for the economy, potentially allowing rich foreign nations and their financial institutions to dictate the country's policies.

"We can't allow this to happen," declared Ashwani Mahajan, the co-convenor of Swadeshi Jagran Manch (SJM), the economic wing of the Rashtriya Swayamsevak Sangh (RSS).

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The RSS was the key founder of the ruling Bharatiya Janata Party and has people it nurtured in top positions in the government, including Modi himself.

Declaring that the SJM will campaign against the plan by convening meetings of influential economists, Mahajan said: "We are confident that government will withdraw its decision on these bonds."

"We must look at the experience of countries that have taken loans from international markets to meet their government deficit. The experience of these countries has been far from good," he said, citing Argentina and Turkey as examples.

Mahajan said going overseas to borrow may mean that the rupee currency depreciates at a faster rate and allows foreign governments to demand tariff reductions.

A Finance Ministry spokesman declined to comment for this story.

Speaking at a business summit in London, British Prime Minister Theresa May expressed hope that the Indian government would choose the British capital as the location to issue its first international sovereign bonds.

New Delhi has not so far given any details about where they will be issued.

Subhash Chandra Garg, the top official at the Finance Ministry, told Indian business leaders last week that the overseas debt move was part of efforts to bring down real interest rates for Indian firms, to help the economy grow faster.... : Like it or not, gene