Indian two thousand and five hundred rupee banknotes are arranged for a photograph in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Credit Concerns Push India Fund UTI Asset Into Safer Bonds 

(Bloomberg) -- India’s debt failures are making risk-averse credit investors pickier, and that’s prompting some money managers to seek refuge in safer securities.

In one of the latest examples, India’s sixth-largest fund house UTI Asset Management is now buying more top-rated corporate bonds, fixed income fund manager Sudhir Agrawal said in a phone interview. UTI had trimmed its holding in non-AAA corporate bonds in its flagship fund to about 10-20 percent from as much as 25 percent three years ago.

Most investors consider the country’s triple-A rated bonds as a safe bet. Last year, none of the securities rated AAA by S&P Global Ratings’ local affiliate Crisil Ratings and Care Ratings defaulted.

Given credit events in the past two to three years, “institutional and large corporate investors are more conservative and want to minimize their credit risk,” said Agrawal, adding that credit-quality focused investors prefer funds with 80-90 percent allocation in AAA instruments.

A rising number of defaults have raised concern among investors. The country has been sitting on a pile of about $210 billion of stressed assets, putting 11 of 21 public sector banks under the Reserve Bank of India’s prompt corrective action.

Many Downgrades

In 2015, Indian companies’ offshore debt ratings saw the most number of downgrades in at least a decade by S&P, Moody’s Investors Service and Fitch Ratings. Crisil Ratings cut ratings on 460 companies in six months from April to September 2015.

Rising oil prices and concerns of higher inflation have also kept investors on the sidelines. Brent oil, the benchmark for the commodity, is at about $72 per barrel, up 47 percent from the same period last year. India is the world’s third-biggest oil consumer and relies on imports to meet about two-thirds of its fuel needs.

UTI Asset is now invested more in the shorter end of the curve, with one- to two-year corporate bonds being the focus as they offer better accruals compared with the same duration of government notes, Agrawal said.

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