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The Reserve Bank of India could cut the key repo rate by 50-75 basis points in this cycle, unlike the U.S., where cumulative rate cuts of 225 bps are being priced in, he said.
Indian private insurer ICICI Prudential Life Insurance plans to raise investments in longer duration federal government bonds, including the 10-year benchmark, as the demand-supply outlook is “quite favourable”, a senior official said on Wednesday.
“Given the long-term nature of the life insurance business, we have larger investments in the 10-year segment and the long bonds (30-40 year government bonds), with the 50-year government bonds being used for managing our annuity products,” said Ketan Parikh, head of fixed income investments at the insurer, which manages debt assets of more than 1.62 trillion rupees ($19.30 billion).
India aims to gross borrow 14.01 trillion rupees this financial year to meet a fiscal deficit of 4.9% of gross domestic product. Debt auctions have seen a good response amid demand from foreign and long-term investors.
ICICI Prudential Life is keen on buying federal government bonds as the additional returns offered by state government and corporate bonds have diminished, Parikh said.
Bond yields will fall gradually as market positioning is “quite heavy”, and as India’s monetary easing cycle may be shallow, the fund manager said.
The Reserve Bank of India could cut the key repo rate by 50-75 basis points in this cycle, unlike the U.S., where cumulative rate cuts of 225 bps are being priced in, he said.
India’s central bank has kept interest rates on hold for nine consecutive meetings as it aims to lower inflation to target amid food price-led spikes.
ICICI Prudential Life’s Parikh expects the gap between yields on 10-year and 40-year bonds to narrow on demand from insurance companies and other long-term investors, and as interest in derivatives like forward rate agreements has picked up.
Private insurance companies have been absorbing 25%-30% of the supply of long bonds through forward rate agreements and STRIPs, Parikh said. STRIPs are bond instruments that dealers “strip” to sell principal payment and coupon rates separately.
India’s 10-year benchmark bond yield was at 6.86% on Wednesday, while the 30-year and 40-year bond yields ended around 7.01% on Tuesday.
First Published: Sep 04 2024 | 10:31 AM IST